KPMG s international tax reform analyzer

Transcription

1 KPMG s international tax reform analyzer Modeling the potential impact of the new U.S. tax legislation The new U.S. tax law enacted in December 2017 (the 2017 Tax Act) is a game changer for many businesses especially multinational organizations. On the international tax front, the new law is complicated, introducing a number of new tax concepts that are layered on the existing tax system, and may have a significant impact on an organization s global effective tax rate (ETR) and cross-border tax planning. Even the most experienced international tax practitioners can become mired in the complexity when evaluating the potential impact of the new law on their global operations. KPMG LLP s (KPMG s) international tax reform analyzer (ITRA) can help. Why KPMG s ITRA? ITRA is an Excel-based tool that allows for extensive modeling of international tax provisions both those introduced by the 2017 Tax Act and existing provisions with support from KPMG s experienced International Tax partners and professionals to help tailor modeling and assist with identifying significant planning opportunities. ITRA can help you with increased visibility into your projected 2018 global tax profile, the key drivers of your global ETR, and what planning can be considered to potentially improve your tax position. The key features of ITRA include: Powerful modeling capabilities with the ability to handle modeling for tax provision, tax compliance, and tax planning use cases Scalability that can accommodate both back-of-the-envelope and in-depth calculations Extensive scenario planning ability that can help align tax planning with business goals and objectives High-impact outputs to help visualize and compare planning opportunities, perform cost-benefit analyses, and effectively communicate with stakeholders Regular updates reflecting the latest tax technical guidance by the U.S. Department of Treasury and the Internal Revenue Service. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS KPMG s international tax reform analyzer 1

2 Post-tax reform rules can be highly interdependent You cannot rely on intuition. The significant interaction among certain post-tax reform rules requires detailed modeling at both the controlled foreign corporation (CFC) and U.S. shareholder levels to help determine the potential global tax impact of tax reform and tax planning. U.S. shareholder level FTC limitation/ utilization Taxable income/ NOLs BEAT Section 163(j) FDII and GILTI Subpart F income Modeling Cash management CFC level Income Section 163(j) GIL TI Foreign tax credits Losses/deficits E&P Adjustments Subpart F The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS

3 ITRA can handle multiple use cases ITRA can be used to model calculations for quarterly tax provisions and for the year-end compliance process. It can also accommodate the modeling of any number of planning scenarios for up to 10 years using percentage growth rates or actual projections. ITRA is scalable Depending on the objectives, ITRA can be used for high-level directional analyses to, for example, check a company s high-level global intangible low-taxed income (GILTI) calculation. Or, ITRA can be used to model detailed base case or scenario planning, taking into account the potential impact of the new international tax provisions and their interaction with legacy rules, using refined financial data by legal entity, including the allocation and apportionment of expenses to groupings of income at both the foreign entity and U.S. shareholder levels. ITRA can model multiple scenarios ITRA can be used to model multiple scenarios, including, for example, scenarios involving acquisitions, dispositions, supply chain planning (for example, the movement of intellectual property from offshore to the United States or from a reverse hybrid to a nonreverse hybrid), changes to the mix of GILTI inclusions versus subpart F inclusions, and foreign tax credit (FTC) limitation planning, as well as legal entity and debt restructuring planning. ITRA produces high-impact outputs ITRA outputs include 1) visuals generated by Power BI that highlight key drivers of the base case global tax profile and the potential impact of proactive planning scenarios and can be used in discussions with tax, finance, and C-suite stakeholders and 2) Excel reports organized by key tax reform provision and structured to take a user through ITRA inputs, tax rule calculation flows, and resulting numerical outputs. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS KPMG s international tax reform analyzer 3

4 Overview of U.S. taxable income calculation This schematic provides a high-level overview of ITRA s calculation flows from key inputs to CFC-level calculations to U.S.-shareholder-level calculations taking into account the various interplays of the rules. Inputs Calculations U.S. Taxable Income (Pre-Subpart F, GILTI, 163(j), 956 Inclusion) Other Domestic Credits & Inputs 163(j) Limitation Circular/ Dependent Calculation BEAT BEAT Payments FDII Qualifying Transactions FDII U.S. Tax Attributes (FTCs, NOLs, OFLs, ODLs, SLLs, etc.) Section 250 Deduction U.S. Legal Entities (including Foreign Branch Ownership) GILTI Section 956 Loans that Result in Inclusions U.S. Taxable Income Calculation (Post-Subpart F, GILTI, 163(j), 956 Inclusion) Designation of GILTI U.S. Shareholder Subpart F Foreign Legal Entities & Relevant Ownership Basketing of Foreign Source Gross Income Foreign Source Income Determination by Foreign Basket FTC Limitation Calculation by Basket Foreign E&P by Legal Entity Foreign Expenses Section 861 Allocation at Legal Entity Level U.S. Expenses Section 861 Allocation U.S./Foreign Source Income Determination for FTC Purposes The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS

5 ITRA s scope ITRA s functionality encompasses calculations at both the CFC and the U.S. shareholder levels, including the ability to help analyze how the impact of various tax focus areas may affect your global ETR in both dollar and rate terms and concisely summarizes the total potential impact of the 2017 Tax Act (base case) and potential planning scenarios. Specifically, ITRA can help analyze the potential impact of a corporation s: Foreign rate differential GILTI inclusion GILTI IRC section 250 deduction Subpart F inclusion FTC utilization Foreign derived intangible income (FDII) IRC section 250 deduction IRC section 163(j) limitation Base erosion anti-abuse tax (BEAT) Other permanent items. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS KPMG s international tax reform analyzer 5

6 Visualization samples Estimated global ETR reconciliation This sample ETR bridge chart an output from ITRA starts on the far left with global earnings subject to the new 21 percent corporate rate and then highlights the potential impact of selected items (e.g., the foreign tax rate differential and the potential impact of GILTI, FDII, BEAT, 163(j), and other cash tax or rate reconciling items) to come to the resulting global ETR on the far right of the chart. Base case and scenario 1 cash tax expense comparison This sample chart another output from ITRA compares the base case and scenario 1 cash tax results of planning by key focus area such as, among others, FDII, GILTI, subpart F, and 163(j). Scenario Base Case Scenario 1 $100.0M $80.0M $60.0M $40.0M $90.00M $90.00M Increased FDII $49.26M $41.85M Utilization of high foreign taxes Decreased interest disallowance Potential cash tax savings of approximately $16.2 million $20.0M $0.0M ($20.0M) ($40.0M) Global Tax Expense at US Statutory Foreign Branch Tax Impact Foreign Corp Tax Impact BEAT Impact FDII 250 Deduction GILTI Inclusion GILTI 250 Deduction GILTI 78 Gross Up GILTI FTCs Subpart F Inclusion Subpart F 78 Gross Up Subpart F FTCs Other FTCs 163(j) limitation Other Credits $51.84M $35.66M Other Permanent Items $2.01M $4.63M State and Local Taxes Stock Based Compens Global Income Tax Expense ($34.89M) ($30.53M) $0.0M $0.0M ($6.43M) ($15.55M) ($26.62M) ($22.36M) $3.97M $2.87M ($15.04M) ($10.93M) $8.04M $8.03M $0.56M $2.33M ($2.68M) ($11.11M) ($2.27M) ($7.16M) $2.55M $0.21M ($15.00M) ($15.00M) $0.88M $0.88M $1.73M $1.73M ($4.24M) ($4.24M) The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS

7 Example of Excel output The following is an example of an Excel report output from ITRA. In this case, the report walks through a section 163(j) calculation from key inputs to tax rule calculation flows and ends with calculated amounts. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS KPMG s international tax reform analyzer 7

8 Contact us To learn more about KPMG s ITRA, contact your local KPMG adviser or one of the following professionals: Tom Joss Tysons Corner, VA E: tjoss@kpmg.com Rob Clary Principal, International Tax Chicago, IL E: rclary@kpmg.com Steven Davis Principal, International Tax New York, NY E: smdavis@kpmg.com Todd Garrett Dallas, TX E: tgarrett@kpmg.com G. Paul Glunt Principal, International Tax Irvine, CA E: gpaulglunt@kpmg.com Rahul Gomes Short Hills, NJ E: rgomes1@kpmg.com Wally Henderson Atlanta, GA E: wallyhenderson@kpmg.com Jason King Philadelphia, PA E: jsking@kpmg.com Erik Oliverson Managing Director, International Tax Portland, OR E: eoliverson@kpmg.com Bruce Stelzner San Diego, CA E: bstelzner@kpmg.com Jay Tata Boston, MA E: jtata@kpmg.com Timothy Wong Partner, Tax Ignition Center Santa Clara, CA E: timothywong@kpmg.com Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates. kpmg.com/socialmedia The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS