Americans Abroad not GILTI, but the U.S. Tax Reform Punishes Them Hard - Monte Silver of Eitan, Mehulal & Sadot Law Group Works With U.S. Expats Around the World to Understand Tax Repercussions
TEL AVIV, Israel, February 20, 2018 /PRNewswire/ --
Monte Silver of Eitan, Mehulal & Sadot provides guidance to help U.S. expats solve lesser-known tax problems that have emerged from the recent U.S. Tax Reform.
American citizens and green-card holders abroad ("expats") have suddenly woken to a reality where their businesses are subject not only to the 15.5% Repatriation Tax, but to GILTI as well. In the last few weeks, expats and their US CPAs have begun scrambling to see how to address the one time Repatriation tax. How, now some are are beginning to realize that they face the more troubling annual GILTI tax and reporting obligations. To add insult to injury, while corporate shareholders of foreign companies (Google and Apple) receive generous tax credits and deductions for the GILTI tax, the expat - an individual shareholder - gets none. Expats globally, and their CPAs, look for answers.
Background
One of the major provisions of the U.S. Tax Reform involves taxing US multinationals on future "intangible income" earned through their foreign subsidiaries. This tax is called GILTI - Global Intangible Low-Taxed Income. The goal of GILTI was to prevent multinational corporations (such as Apple and Google) from shifting "intangible income" (such as income from the licensing of intellectual Property) from the U.S. to their subsidiaries in low tax jurisdictions.
What is GILTI tax?
The US GILTI tax is imposed on the intangible income of a controlled foreign corporation (CFC), each year from 2018. The three questions are: (i) what is a CFC, (i) what is Intangible income, and (iii) how is GILTI taxed?
A CFC is any non-US corporation where over 50% is owned by a US corporation, citizen, resident or green card holder - a foreign subsidiary of Google & Apple for example. Intangible income is basically defined as Gross Income (revenue less cost of goods sole), less 10% depreciation on tangible assets, less expenses "properly allocable" to such income. The term "properly allocable" is not defined! How is GILTI income taxed? Intangible income is directly included in the income of the US shareholder each year. In other words, any Intangible income the foreign company generates in 2018 is taxable directly to the US shareholder - a 21% tax rate in the case of corporations like Google and Apple. Besides the tax, GILTI imposes highly cumbersome annual reporting requirements, many of which have not even been finalized by the US Treasury regulations.
Expats and GILTI
Unexpectedly, GILTI also applies to US expats around the world. Any expat who owns at least 10% in a CFC is subject to GILTI regulation. And the tax rate: the personal rate of 37%. In addition, each year, the expat family business owner, often working through a small foreign company, is required to retain very costly CPA services, decipher what "properly allocable" expense, and file. No US-based person with a similar business operated through a U.S. corporation is subject to these draconian requirements. And yet, for the expat, the situation gets much worse. While Google and Apple, as US corporate shareholders, enjoy significant tax credits and deductions for the foreign GILTI income, the expat is not entitled to deductions or credits at all. This scenario is not theoretic. It is the actual law under the current reform.
Monte Silver, an experienced US tax lawyer working at the prominent firm of Eitan Mehulal Sadot, first uncovered this issue. Monte, who previously worked at the I.R.S. and the US Tax Court, is working on finding solutions to the problem, and advocating to change this unintended consequence.
Monte Silver commented: "The large multinationals have traditionally used intellectual property to shift income abroad so US Government is now closing these loopholes. However, none of this has anything to do with expats who run their family businesses abroad and somehow who got caught up in this mess. The same is true with the 15.5% Repatriation Tax - which targeted the multinationals but caught the expats in the same net. Expats need to be made fully aware of the horrendous repercussions of GILTI and to make their voices heard. Expats are not guilty of any crime and do not deserve to be treated much worse than Google and Apple. It is my belief that we will see lawsuits filed and worldwide grassroots advocacy emerging in the near future."
Eitan, Mehulal Sadot, is a leading Israeli firm with a rich and diverse expertise in all aspects of commercial law. With a wide range of professional departments, a far-reaching global presence and high-profile clients both in Israel and overseas, we continue to grow in accordance with current international business trends and the latest legal and legislative developments.
Media Contact:
Monte Silver
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+972-9-972-6000
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