Question

Cadence, Inc., is a United States C corporation that is a 12% shareholder of Rhythm, Co., a Cayman Islands corporation. On its return for the tax year ending on December 31, 2017, Cadence repatriated $1.3 million in previously untaxed profits earned by Rhythm under the repatriation provision of the Tax Cuts and Jobs Act. All $1.3 million was attributable to cash and cash equivalents. Which of the following is true?

Cadence will not be required to pay U.S. income tax on this income because the 100% Dividends Received Distribution for dividend income of foreign subsidiaries will allow it to entirely exclude the income from U.S. taxation.

Cadence must pay a repatriation tax of $201,500 (15.5%) in full on its 2017 tax return. It must pay the entire amount in 2017.

Cadence will be subject to a total repatriation tax of $104,000 (8%), but it may elect to pay that amount over eight years.

None of the above.

Answer 1

Cadence must pay a repatriation tax of $201,500 (15.5%) in full on its 2017 tax return. It must pay the entire amount in 2017.

Earnings held as cash/ cash equivalents are subject to 15.5% tax while others are subject to 8% tax. Since Cadence holds at least 10% share in the foreign company, it is subject to 15.5% repatriation tax. Other options are hence incorrect.