SINGAPORE (Jan 29): Dec 22, 2017 was a landmark date in US tax legislative history. President Donald Trump signed into law the Tax Cuts and Jobs Act (H.R. 1) — a change that represents the most comprehensive overhaul of the US tax system in more than 30 years and is expected to have an extensive impact on all US taxpayers, including overseas investors and US MNCs.

There is a mixture of “carrot and stick” measures in the law. The “carrot” measures seek to attract new investments into the US in the form of people (hiring) and assets (manufacturing equipment, intellectual property and so on). Among the main provisions are a reduction of the corporate tax rate from 35% to 21%, a new dividend exemption system for certain foreign source dividends paid to US corporations, a special 13.125% effective tax rate on foreign derived intangible income (FDII), and 100% immediate tax deduction for qualifying capital purchases.

The “stick” measures aim to discourage corporations from eroding the tax base of their US operations through large tax-deductible payments and locating people and assets outside the US, where the income from such operations might not be subject to US taxation permanently. A new base erosion and anti-abuse minimum tax (BEAT), new controlled foreign corporation rule targeting global intangible low-taxed income (GILTI), and tighter interest expense limitation rules are some of the measures introduced.

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