Summary
Garmin Ltd. filed an 8-K on January 29, 2018, to update investors on potential tax implications arising from the Tax Cuts and Jobs Act (TCJA) signed on December 22, 2017. The primary concern is that changes in U.S. federal income tax law, specifically the repeal of Section 958(b)(4), may cause certain Garmin foreign subsidiaries to be reclassified as Controlled Foreign Corporations (CFCs) for U.S. tax purposes. This reclassification could have adverse tax consequences for U.S. shareholders who own 10% or more of Garmin's stock (10% U.S. shareholders). The company notes that prior to the TCJA, it did not believe its foreign subsidiaries were classified as CFCs. However, the TCJA's provisions, including potential requirements for 10% U.S. shareholders to include pro-rata shares of CFC earnings and profits (E&P) and global intangible low-taxed income (GILTI) in their income, could lead to unexpected tax liabilities. Garmin also highlighted that its own potential use of anti-dilutive measures, such as stock buybacks, could inadvertently create new 10% U.S. shareholders, thereby triggering these adverse tax consequences. The company strongly advises affected shareholders to consult with their individual tax advisors due to the uncertainty surrounding the application of these new tax laws.
Key Highlights
- 1Garmin Ltd. issued an 8-K to inform investors about potential tax implications from the Tax Cuts and Jobs Act (TCJA).
- 2The TCJA may cause certain Garmin foreign subsidiaries to be reclassified as Controlled Foreign Corporations (CFCs) for U.S. tax purposes.
- 3This reclassification could lead to adverse U.S. federal income tax consequences for 10% or greater U.S. shareholders.
- 4The key change stems from the repeal of Section 958(b)(4) of the Internal Revenue Code.
- 5New provisions like Section 965 (mandatory inclusion of certain E&P) and Section 951A (GILTI) may apply.
- 6Garmin's stock buyback programs could inadvertently create new 10% U.S. shareholders, triggering these tax consequences.
- 7Affected shareholders are strongly advised to consult with their tax advisors for guidance on the TCJA's impact.