KPMG’s international tax reform analyzer · KPMG’s international tax reform analyzer 1 KPMG’s...
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1 KPMG’s international tax reform analyzer 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. © 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
Transcript of KPMG’s international tax reform analyzer · KPMG’s international tax reform analyzer 1 KPMG’s...
1KPMG’s international tax reform analyzer
KPMG’s international tax reform analyzerModeling 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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
Post-tax reform rules can be highly interdependentYou 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
ModelingCash
management
CFC level
Taxable income/
NOLs
FTClimitation/ utilization
BEAT
FDII and GILTI
Subpart F income
Section 163(j)
— Foreign tax credits
— Losses/deficits
Section163(j)
E&P Adjust-ments
Subpart F
GIL TI
Income
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
ITRA can handle multiple use casesITRA 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 scalableDepending 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 scenariosITRA 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 outputsITRA 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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082 3KPMG’s international tax reform analyzer
Overview of U.S. taxable income calculationThis 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
U.S. Taxable Income (Pre-Subpart F, GILTI, 163(j), 956Inclusion)
Other Domestic Credits & Inputs
163(j) Limitation
Circular/ Dependent Calculation
BEAT
FDII
Section 250 Deduction
GILTI
Subpart F
Foreign Source Income Determination by Foreign Basket
Section 956 Loans that Result in Inclusions
FTC Limitation Calculation by Basket
U.S./Foreign Source Income Determination for FTC Purposes
Basketing of Foreign Source Gross Income
Foreign Expenses Section 861 Allocation at Legal Entity Level
U.S. Expenses – Section 861 Allocation
BEAT Payments
FDII Qualifying Transactions
U.S. Legal Entities (including Foreign Branch Ownership)
Foreign Legal Entities & Relevant Ownership
Foreign E&P by Legal Entity
Designation of GILTI U.S. Shareholder
U.S. Tax Attributes (FTCs, NOLs, OFLs, ODLs, SLLs, etc.)
Calculations
U.S. Taxable Income Calculation (Post-Subpart F, GILTI, 163(j), 956 Inclusion)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
ITRA’s scopeITRA’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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082 5KPMG’s international tax reform analyzer
Base case and scenario 1 cash tax expense comparisonThis 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).
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TI 7
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j) lim
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Scenario 1
Potential cash tax savings of approximately
$16.2 million
Decreased interest disallowance
Utilization of high foreign taxesIncreased FDII
Visualization samplesEstimated global ETR reconciliationThis 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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
Example of Excel outputThe 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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082 7KPMG’s international tax reform analyzer
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.
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Contact us
Tom JossPartner, International Tax Tysons Corner, VAE: [email protected]
Rob ClaryPrincipal, International Tax Chicago, ILE: [email protected]
Steven DavisPrincipal, International Tax New York, NYE: [email protected]
Todd GarrettPartner, International TaxDallas, TXE: [email protected]
G. Paul GluntPrincipal, International Tax Irvine, CAE: [email protected]
Rahul GomesPartner, International Tax Short Hills, NJE: [email protected]
Wally HendersonPartner, International Tax Atlanta, GAE: [email protected]
Jason KingPartner, International Tax Philadelphia, PAE: [email protected]
Erik OliversonManaging Director, International Tax Portland, ORE: [email protected]
Bruce StelznerPartner, International Tax San Diego, CAE: [email protected]
Jay TataPartner, International TaxBoston, MAE: [email protected]
Timothy WongPartner, Tax Ignition Center Santa Clara, CA E: [email protected]
To learn more about KPMG’s ITRA, contact your local KPMG adviser or one of the following professionals:
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.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 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 760082
