U.S. Treasury proposes rules on repatriating overseas corporate income

By David Morgan

WASHINGTON (Reuters) - The U.S. Treasury on Wednesday unveiled proposed regulations governing the repatriation of more than $2.6 trillion in U.S. corporate foreign income, a move experts see as a vital step in returning the money to U.S. soil.

The 2017 Republican tax bill that President Donald Trump signed into law in December allows major corporations, which have been stockpiling income abroad for decades, to repatriate the money at special low-interest rates of 15.5 percent on cash and cash equivalents and 8 percent on illiquid assets.

Trump and Republicans view the capital's return as an important stimulus to economic and job growth, while Democrats predict much of the money will be used instead to repurchase shares and declare lucrative dividends for shareholders.

But only now have regulators at Treasury and the Internal Revenue Service begun to set down rules on how companies should apply the new law to their overseas holdings.

"The Tax Cuts and Jobs Act creates a historic opportunity for American companies to bring capital back home from overseas to invest in our domestic economy and create jobs," U.S. Treasury Secretary Steven Mnuchin said in a statement.

"Our administration's policies are focused on creating a more competitive system for business," he added.

Experts say Wednesday's proposed rule is only the first in an expected series of Treasury guidance needed to clarify the new tax law's international provisions before U.S.-based multinational corporations can undertake major investment decisions with the money.

Some analysts have also warned that the Trump administration could leave in place a loophole allowing corporations to dodge billions of dollars in taxes.

Before the new law took effect, corporations with household names like Apple Inc, Google, Microsoft Corp and Pfizer Inc were required to pay a domestic tax rate of up to 35 percent, less credit for foreign tax payments, on foreign income brought back to the United States.

But they could defer their tax bills so long as the money remained abroad.

The Tax Cuts and Jobs Act slashed the domestic tax rate to 21 percent, allowed corporations to pay the two lower rates on repatriated foreign income over an eight-year period and did away with U.S. tax on most foreign income going forward.

(Reporting by David Morgan; Editing by David Gregorio and Jonathan Oatis)