More on the Transition Tax…

In January, John Richardson and I recorded a conversation about the “Transition” tax that was part of US tax reform. John’s post introducing the videos is here: U.S. Tax Reform and the “nonresident” corporation owner: Does the Sec. 965 transition tax apply?

The transition tax is the provision in the tax reform bill that concerned us so much when it was introduced that we posted a Call to Action! In short, when applied to an Australian-resident US taxpayer, the transition tax asserts the right of the US to reach inside an Australian corporation and tax previously earned active business income just because a majority of the company is owned by “US Shareholders”. This is a major departure from prior law, and calendar-year taxpayers were given not much more than a week from the date the law was signed to the end of the tax year in which this new tax would be applied – certainly not enough time to understand the new law, let alone plan to avoid the inherent double taxation. Furthermore, in all of the hearings on the bill, not one Representative or Senator mentioned anything about the applicability of this provision to corporations owned by tax-residents of other countries, for whom the idea of “repatriating” profits to the U.S. is not only absurd, but also a drain on the economy of the country they call home.

3 thoughts on “More on the Transition Tax…”

  1. Dear Karen…Accolades and many thanks for achieving pg. 16 coverage in today’s Sun-Herald newspaper (Fairfax media, Sydney) about the tax situation for Americans who don’t live in the US. My husband and I attended yesterday’s Moodys Gartner seminar and I note that Alex Marino was quoted in the article too. You highlighted the taxation of Australian superannuation income streams by the US and, implicitly, the Australian government’s failure to negotiate an end to this; indeed the AU/US tax treaty needs to be renegotiated. As for FATCA, the no. of AU-held accounts and the total balance reported suggests the data is the archetypal ‘garbage in, garbage out’ – an avg. balance of $213,000+.

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