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April 18, 2017

A month ago, the entire blueprint for tax reform seemed to be on a solid path to amend U.S. tax law. Today, that seems less certain. We will spare you the repetitive rhetoric from Washington, but don't be lulled into complacency. While the full blueprint has its challenges, some features have a high probability of success.

The one-time toll charge on offshore earnings is a great example. It is not only a key feature of the blueprint but also several other past and present tax reform proposals. Most importantly, the toll charge uniquely attracts bipartisan support. Democrats like it because it raises revenue for infrastructure spending. Republicans like it because it funds reinvestment into the U.S. economy. What's not to like?

Tech companies collectively agree with these favorable attributes. As an industry whose economic footprint is more scattered globally, tech companies generally have a higher percentage of their earnings offshore. The impact of the toll charge could be significant.

As a leading tax adviser to the industry, we admire the tech industry. It not only adapts to change, but it creates it. Take a look behind the scenes and you will see the strongest tech companies bracing for a toll charge. Here is how we are seeing them prepare:

Forecasting the liquidity impact

  • The toll charge could require more cash for current taxes than anticipated.

Bracing for the profit and loss (P&L) impact

  • Permanently reinvested companies anticipate a book expense hit; others could see a benefit.

Beating the system

  • Taking steps today to reduce offshore earnings, and
  • Accelerating repatriation to use foreign tax credits could reduce taxes.

We not only agree with this approach, we highly recommend it.

Authors: Brendan Sinnott and Mike Eagan

We’d love to get your thoughts: What is your latest thinking on the likelihood of tax reform overall? How about specific features of reform? Has your company evaluated potential planning opportunities? Please call or aliguori [at] alvarezandmarsal.com (email us) and let us know!

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