The House and Senate conferees agreed at the end of last week on a reconciliation bill to be forwarded this week for a final vote, and then signature (i.e. “enactment”) by President Trump. An excellent summary of some key corporate provisions is included by McDermott, Will & Emery, and the actual text of the bill is linked for reference.
The complexity is abundant for year-end public company reporting, especially by US MNE’s, including a complex calculation of the accumulated foreign earnings upon which the one-time transition tax will apply.
It is not too soon to begin a discussion with auditors re: expected deliverables, especially concerning the practical aspects of the calculations that will be involved for year-end and the first quarter of 2018.
It is both a challenging and exciting time to be an international tax practitioner/advisor, as this is a revolutionary change in the history of US tax reform for all.
Amid the last-minute penciled-in amendments and heated discussions, the Senate Bill was narrowly passed by a vote of 51-49, with the text referenced herein.
The bill now moves to a reconciliation phase between the House and Senate, with such bill potentially forwarded to the President for signature before Christmas.
Several amendments were passed, including a phase-out of the corporate property expensing provision after 2022, reinstatement of corporate AMT and an increase of the deemed repatriation tax for accumulated foreign earnings (thereby achieving greater tax revenues for passage).
The 479-page bill is still incredibly complex, in effect layering upon the present US tax rules in many areas, and the final reconciliation stage will produce additional changes. However, it is expected that the Senate’s provisions will largely remain in place as the votes are more critical for passage and major shifts in an already contentious bill may point to possible defeat of the bill, which President Trump is not willing to accept.
Next stage after passage: A review, starting now, of earnings and profits, etc. that will drive the relevant tax accounting adjustments required for year-end closing of the books for calendar-year taxpayers due to “enactment” of the bill prior to Dec. 31st.
The US Senate passed their version of the Fiscal Year Budget 2018, an important step that leads to reconciliation of the budget this coming week by the House and Senate.
Following the budget reconciliation, allowing a majority vote for tax reform, US tax reform is now on the horizon for potential enactment by year-end 2017.
To the extent potential US tax reform has been on the backstage, or ignored by pessimists, this latest step should be a strong indication that everyone needs to understand the Framework, albeit brief, previously announced and advocated by President Trump.
Attention is now in the details, with significant tax and business consequences for the US and the world.
EY’s Global Tax Alert provides additional details on this latest development.
The Joint Committee of Taxation (JCT) has published a valuable reference to the principles underlying tax reform that will be presented to the Senate Finance Committee on October 3, 2017.
This reference is a helpful document into understanding some of the rationale and intentions that will become a part of the legislative writing process, as it includes background context of the issues.
A link to the JCT site and document is provided.
The US Tax Framework was published Sept. 27, a notable date as this date is also used to mark the timeframe for expensing investments.
The main corporate tax points, and subtleties, include:
- 20% corporate tax rate, but the tax rate and differential for one-time foreign earnings/cash is not specified.
- Minimum tax on foreign profits to “level the playing field”
- Territoriality system, exempting 100% of dividends (although the KPMG linked notes include the point that this is not equivalent to “distributions” thus a complicated Earnings and Profits tracking system may still apply)
- Interest expense will be “limited” (EBITDA/other?)
- R&D credit remains, although Sec. 199 US manufacturing incentive deduction is lost
- Pass-through structures tax rate of 25%
- Corporate AMT is gone.
The President has formally and forcefully announced his continued message for tax reform, as both the House and Senate Committees are now drafting language that will hopefully result in legislation enacted late 2017 or early 2018 with the political complexities / process.
Upon enactment, the US GAAP tax accounting will be complex and required results for public companies in the quarter of enactment. Additionally, the timing for state enactment is also a separate complex issue that will need analysis.
The US Framework is repeatedly attempting to “level the playing field,” now the politicians, journalists, advisors and tax practitioners will all work with a little bit of fact to create a cocoon of fiction by which the impending tax reform can be measured.
EY’s Global Tax Alert highlights several postulates for potential US tax reform, in which both the House and Senate are busily writing new language this month to push this reform effort by President Trump.
The OECD’s additional guidance on Country-by-Country reporting is also reiterated, and the short-term extension for the US debt limit is provided to further the tax reform process.
As the time for US seems to tick ever closer, EY’s Global Tax Alert highlights the tax accounting implications that would take effect on the “enactment date.”
Key items for consideration:
- Tax attributes re: one-time repatriation/taxation of foreign earnings
- Capital expensing impact
- State tax impact, dependent on if they automatically follow federal tax law
- APB 23, how will this be affected?
Although such items are hypothetical at the moment, some items may require additional planning to have the data available for the requisite disclosures. Thus, the time for planning and consideration is the present.