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Taxpayers and advisers have had a couple of months to digest the detail of the US tax reform. Although the need for technical corrections to the legislation has been identified, it will not be possible to get Congress to pass the changes so it is expected that US Treasury guidance will be issued in the form of draft regulations by the end of 2018 and final regulations in 2019 to clarify how the legislation is intended to work. In particular, clarification is awaited on to whom the primary liability for the repatriation charge attaches (to the US parent or to a US subsidiary which owns the foreign investments). This will be of concern to a purchaser of a company which has the liability to make the tax payments over the course of eight years for the repatriation charge. For the next few years, while the numbers are being finalised, we would expect any buyer of a US company which might be liable for the repatriation charge to carry out due diligence to check that the amount of repatriation tax forecast to be paid over the eight year period is correct. We would expect to see the repatriation tax charge factored into pricing or picked up by an indemnity.
This article was first published in the 9 March 2018 edition of Tax Journal