FROM THE OFFICE OF PUBLIC AFFAIRS
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May 10, 2005
JS-2436
Treasury and IRS Announce Second Set of Repatriation Guidance
Under sec. 965
WASHINGTON, DC -- Today the Treasury Department and IRS announced the second in a series of notices that provide detailed guidance for U.S. companies that elect to repatriate earnings from foreign subsidiaries subject to the temporary reduced tax rate available under the American Jobs Creation Act (AJCA). The notice released today provides guidance to companies on what constitutes a qualifying dividend, the impact of mergers and acquisitions and issues related to the section 78 gross-up.
Internal Revenue Code section 965, enacted as part of the AJCA in October 2004, is a temporary provision that allows a U.S. company to repatriate earnings from its foreign subsidiaries at a reduced effective tax rate provided that specified conditions and restrictions are satisfied. Section 965 provides that a U.S. company may elect, for one taxable year, an 85 percent dividends received deduction for eligible dividends from its foreign subsidiaries, giving it an effective 5.25 percent tax rate on qualifying dividends.
In January 2005, Treasury and IRS issued a notice (Notice 2005-10) that provided guidance to companies on the domestic reinvestment plan requirement under the new provision. The notice specified permitted investments in the United States for which the repatriated funds may be used under this provision. The notice announced today (Notice 2005-38) provides additional guidance on the amount of dividends that qualify for the dividends received deduction. Further, Treasury and the IRS announced their intention to issue a third notice that will address the impact of section 965 on a corporation's computation of its tax liability.
A copy of the regulations and a fact sheet providing additional details are attached.
REPORTS