New rules of the game: The implications of US tax reform for blocker corporations
The Tax Cuts and Jobs Act, signed into law 22 December 2017, contains sweeping changes to the Internal Revenue Code of the United States. A central and welcomed provision of the new law is the lowering of the top federal corporate income tax rate — including the rate applicable to gains from the disposition of US real properties — to 21 percent from 35 percent. The new law also includes a number of revenue raisers that may significantly curtail the tax benefit of deductible payments made by US groups to their foreign affiliates. The combined effect of these provisions could raise the effective federal tax rate of certain foreign-owned US corporations above the 21 percent headline rate.
When a US corporation makes a payment to a foreign person, the amount may be subject to a 30 percent US statutory withholding tax. Similarly, a 30 percent branch profits tax applies to a foreign corporation’s gains from the disposition of US real properties, unless an exception is availab