Member Article

If you are a U.S. business with international operations, here are four questions you should consider:

• Does your company have more than two foreign subsidiaries, at least one of which is profitable?
  
• Do you have a profitable foreign subsidiary that guarantees any U.S. debt?
  
• Are you considering the purchase of a company located outside the U.S.?
  
• Does your U.S. company generate more than 80% of its revenue from outside the U.S.?

If the answer to any of these questions is yes, your business may be affected by recent changes in U.S. tax law.  

On August 10, 2010, the President signed into law the Education Jobs and Medicaid Assistance Act of 2010.  The new Act is designed to provide nearly $10 billion in healthcare funding.  However, to help pay this expense, the Act repealed or modified long-standing tax benefits previously available to U.S. companies having international operations.  As a result, some U.S. companies having international operations may be adversely affected, and may find themselves with higher U.S. tax bills beginning as soon as 2011.  Specifically, the new Act provides for:

1. New rules preventing the splitting of foreign tax credits from the associated foreign income
   
2. Eliminating foreign tax credits for covered asset acquisitions
   
3. Limits on Section 956 “hopscotching” to increase foreign tax credits
   
4. Limitations on certain redemptions by foreign subsidiaries
   
5. Modification of the affiliation rules for allocating interest expense
   
6. Repeal of the 80/20 Company rules
   
7. Suspending the 3-year assessment period for failure to disclose certain foreign transactions

Some of the changes in tax law may require you to revise your operating structure to minimize the tax impact.  Some of the changes are unavoidable, and will require improved planning and cash management.  In any event, we welcome the chance to review your company’s international operations and determine whether the new Act will affect your profits.

Bill Winter 
404.504.7668
[email protected]

Chuck Beaudrot
404.504.7753
[email protected] 

Cass Brewer
404.504.7627
[email protected]