On 15 January 2019, the US Treasury Department and the US Internal Revenue Service (IRS) issued the final regulations that provide guidance on the transition tax under section 965 of the US Internal Revenue Code (IRC).
The transition tax is imposed on untaxed foreign earnings of foreign subsidiaries of US companies under IRC section 965, which treats those earnings as if they had been repatriated to the United States.
Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate. The remaining earnings are taxed at an 8% rate.
The final regulations adopt, with certain revisions, the proposed regulations (REG-104226-18) that were published on 9 August 2018.
The final regulations generally apply beginning the last taxable year of a foreign corporation that begins before 1 January 2018, and with respect to a United States person, beginning the taxable year in which or with which such taxable year of the foreign corporation ends (i.e. the applicability date of IRC section 965).
The final regulations will be effective on the date that final regulations are published in the Federal Register.