The International Provisions of the TCJA: Six Results after Six Months

7 Pages Posted: 12 Sep 2018 Last revised: 25 Sep 2018

Date Written: August 31, 2018


Over six months have passed since the enactment of the TCJA, so it is now possible to reach some preliminary conclusions on its impact. The main ones are:

1. The transition tax plus anticipated GILTI tax minus territoriality have resulted in higher GAAP effective tax rates for 2017. In some cases they approach 35% for large multinationals with a lot of offshore income. For the first six months of 2018, however, overall corporate tax revenues are sharply down because of the 21% rate plus expensing. This is the exact reverse of the situation before TCJA in which MNEs showed very low effective tax rates on the financials but overall corporate revenue was remarkably robust. 2. As expected, the transition tax has resulted in a significant repatriation of offshore earnings that were primarily invested in stock buybacks. 3. The main outcome of TCJA in in the international arena is not territoriality (i.e., participation exemption) with a minimum tax, but rather a worldwide tax regime with no deferral, but with a lower rate for foreign income. That is because for most of the large US MNEs the amount of offshore income that can avoid GILTI and therefore be eligible for zero tax under territoriality is very small. 4. FDII is a failure, it is too risky to move intangibles into the US because it may be a Hotel California situation if the law is changed. This may be why there is no WTO challenge. 5. BEAT is a success, although the revenue estimate is too high, because it may be easy to avoid by recharacterizing royalties as cost of goods sold under 263A. But this could be subject to the BEAT anti-abuse rule. 6. The FTC, which was supposed to become less important because of territoriality, is more important because 960 is the new 902, with five baskets instead of two (general, passive, GILTI, branch, treaties). This has created significant complexity and much work for tax lawyers.

Keywords: TCJA, tax reform, WTO

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., The International Provisions of the TCJA: Six Results after Six Months (August 31, 2018). U of Michigan Law & Econ Research Paper No. 18-021, U of Michigan Public Law Research Paper No. 621, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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