Repatriating foreign earnings may become a lot easier | Norton Rose Fulbright
Among the proposals that Congress is considering including in an economic stimulus bill this spring is a plan to give US companies a brief window during which they can bring back earnings they have parked in offshore corporations without having to pay full US taxes on the earnings. Under the plan, US companies would be able to exclude 85% of dividends received from “controlled foreign corporations” from US tax. This would only apply to dividends received during 2003 and the first half of 2004. A “controlled foreign corporation” is an offshore corporation that is owned more than 50% by US shareholders.
US power companies that own foreign projects have struggled to find ways to tap into earnings from their foreign projects without subjecting the earnings to US tax. Most such earnings are parked in offshore corporations. They will become subject to US tax if they are repatriated to the United States. The earnings have usually already been taxed abroad. The US allows a credit in theory for any taxes that were already paid on the earnings to another country. However, the foreign tax credit rules are so full of fine print that almost no US power company is eligible to use such credits.
Under the proposal, companies that take advantage of the new 85% exclusion for dividends from controlled foreign corporations would have to forego any use of foreign tax credits to offset US taxes further on the dividends.
Congress is about to get to work on an economic stimulus bill. The proposal is one of several that were listed in a Joint Tax Committee pamphlet for the Senate tax-writing committee in connection with hearings on February 11 and 12 on possible stimulus measures.