Monday, October 1, 2018
Erica York (Tax Foundation), Evaluating the Changed Incentives for Repatriating Foreign Earnings:
Prior to the Tax Cuts and Jobs Act (TCJA), the tax code created major disincentives for U.S. companies to repatriate their earnings, or bring earnings made overseas back to the United States. Changes in the TCJA eliminate these disincentives, thus, going forward, companies do not face the old barriers which discouraged repatriation.
Due to the old disincentives, companies had built up large amounts of earnings abroad. Given the change in the incentives, many have speculated that this will lead companies to repatriate large shares of the earnings that they have been holding overseas. While we have seen a significant uptick in repatriation since enactment of the TCJA, it’s important to understand the context and intent of the TCJA’s reforms, as well as the composition of the cash held abroad, to appropriately analyze the effects of deemed repatriation.
This paper briefly reviews how the Tax Cuts and Jobs Act changed the tax treatment of foreign earnings and then examines research on the amount and composition of overseas earnings. This is followed by a discussion of factors relevant to how companies might react to these changed incentives.