United States: U.S. Tax Reform: Key Changes For Corporations And Individuals

Last Updated: January 26 2018
Article by Scott Semer, David Mattingly and Peter Keenan

United States president Donald Trump signed in December 2017 the “Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” informally known as the Tax Cuts and Jobs Act of 2017. We discuss the impact the changes will have on both corporations and individuals.

Key Changes

The Tax Cuts and Jobs Act contains the most significant revisions to the U.S. Tax Code in decades. It will substantially change how U.S. corporations are taxed, make modifications to the taxation of individuals and effect the manner in which international transactions are taxed. Areas of uncertainty will need to be clarified by regulations and notices issued by the U.S. Treasury Department and the Internal Revenue Service.

Some key changes are detailed below.

  • The new federal corporate income tax rate drops to 21%, down from 35%.
  • Allowances are now made for immediate expensing of most types of depreciable property other than real estate. As a result, corporate taxpayers can claim a 100% deduction in the year a property is placed in service, rather than having to depreciate it over time.
  • U.S. corporations are subject to a modified "territorial" system of corporate taxation, where certain off-shore earnings are not be subject to corporate tax in the U.S., and taxed at lower rates.
  • The changes make the U.S. a more attractive location for a parent of a multi-national enterprise and will level the playing field somewhat compared to other jurisdictions.

Inbound Investment in U.S. Real Estate

The Act improves the tax landscape for inbound investment in U.S. real estate. Now, investments made by corporations or through entities treated as corporations (otherwise known as Blockers) will benefit from the new lower corporate rate.

The changes make the U.S. a more attractive location for a parent of a multi-national enterprise and will level the playing field somewhat compared to other jurisdictions.

As a results of the changes, real estate businesses will now generally be exempt from both the old and new earnings-stripping rules of section 163(j) (with real estate business being generally defined fairly broadly). This will allow for the use of cross-border leverage to reduce U.S. net basis tax and take advantage of exceptions from U.S. withholding tax for "portfolio interest" and under provisions of double tax treaties such as Article XI of the U.S. Canada Income Tax Treaty. It is worth noting that more restrictive earnings-stripping rules that would have applied to real estate subsidiaries that were part of certain international groups were dropped from earlier versions of the Act and did not become law.

Private Equity Funds

In terms of private equity, new carried interest rules impose a new three-year holding period for carried interest holders to benefit from capital gain rates. This means private equity fund sponsors may not want to sell any assets until at least three years after they are acquired.

Private equity fund sponsors may not want to sell any assets until at least three years after they are acquired.

Corporate Blockers used by funds will benefit from the new lower corporate rate, but will be subject to the new restrictive earnings-stripping rules with respect to non-real-estate businesses, which will limit interest deduction to 30% of EBITDA.

Full expensing of most depreciable property other than real estate will help lower effective tax rates for Blockers and taxable investors. Taxable U.S. investors will benefit in many scenarios from a new lower effective tax rate for pass-through income from active businesses.

Funds may be more reluctant to sell Blocker shares for reasons discussed under M&A below, and because the tax leakage inside the Blocker on an asset sale will be lower.

Secondary purchases and sales of interests in funds will have to deal with new rules that impose tax on gain from a sale by a non-U.S. resident on interest in a fund to the extent that a sale by the fund of its assets would have produced "effectively connected income."

A 10% withholding tax will also apply to the sale unless no portion of the gain would be treated as effectively connected income under the new rules. The manner of certifying that the withholding tax does not apply is not specified in the Act and will have to be developed through regulations. This withholding rule may significantly complicated secondary sales.


The new rules allowing immediate expensing of acquired assets may tilt the field toward asset acquisitions (or transactions treated as asset acquisitions for tax purposes) rather than stock acquisitions.

Eliminating net operating loss (or NOLs) carrybacks may cause some sellers to ask buyers to make "tax receivable" payments if and when the buyer uses the NOLs in future periods.

New restrictions on transferring assets used in a U.S. business to non-U.S. entities will make tax-free outbound M&A more difficult and may lead to more taxable transactions or structures that don't involve outbound transfers.

New base erosion payment regimes will make cross-border structures require more analysis to determine if payments among related parties trigger the new base erosion tax.

Cross-Border Payments

A base erosion payment regime will impose an alternative tax on corporations that make deductible payments to related foreign affiliates. The regime effectively functions like an excise tax (generally 10%, rising to 12.5% in 2026) on certain payments to related non-U.S. parties.

An additional base-erosion anti-hybrid rule will deny a deduction for cross-border payments from U.S. entities to offshore entities or branches through "hybrid" entities or branches. These are treated differently in non-U.S. jurisdictions than they are in the U.S.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions