As the media organizations called the election over the weekend, notwithstanding legal challenges, US President-elect Joseph Biden is scheduled to officially commence his duties on January 20, 2021.
The Senate, currently a Republican majority, will have January 2021 runoffs in Georgia, that will determine the majority. This majority is key as to how much, or little, tax legislation will be passed the next four years.
It is anticipated that Joseph Biden will strive to increase the US federal income tax rate, and reverse part of the US TCJA provisions.
This new legislative agenda will be both interesting and exciting, as well as the DST push by OECD and UN for their separate proposals.
The attached Tax Foundation is an excellent place to start, for an overview.
House Ways and Means Committee Chairman Kevin Brady (R-TX) released a listening session framework for “Tax Reform 2.0.” This framework launches the listening sessions that will occur with lawmakers and constituents back home as Ways and Means Republicans work to make our new pro-growth tax code even stronger for our families and Main Street businesses.
Upon releasing this framework, Chairman Brady said:
“Every day, businesses wake up and ask themselves ‘how do we become more competitive, innovative, and better?’ That practice has always been foreign to Washington—that ends now. With this framework, we are taking the first step to change the culture in Washington D.C. where tax reform only happens once a generation. We plan to work off this framework to build on the growing successes of the Tax Cuts and Jobs Act and ensure this energized economy continues moving forward.”
The listening session framework is attached for reference:
EY’s Global Tax Alert details several important global developments worth watching:
Phase 2 US tax reform – individual taxes, what else?
OECD’s first peer review reporting on BEPS Action 13: TP Documentation and County-by-Country (CbC) reporting (attached herein for reference)
EU Directive on cross-border reportable arrangements, reporting to commence in 2020 although effective date will be June/July 2018.
The reportable arrangements are a must read for international tax colleagues to understand the impact of arrangements planned for currently that may become a transparent arrangement to be reported in the EU.
The OECD CbC report is also helpful to understand the trend that CbC reports will generate ongoing, and the viewpoint of the countries that administer this process.
The OECD BEPS Actions, including CbC reporting, significantly impact international tax compliance burdens and challenges going forward. Additionally, US tax reform still has experts deliberating their practical application, notwithstanding future legislation.
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.
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.
With the (unexpected) victory for President-elect Trump, coupled with a majority in both the House and Senate, it is highly likely US tax reform is near. There is a close correlation with Trump’s Plan and the Republican’s Blueprint tax reform initiative, although transitional details (Foreign Tax Credits, Earnings & Profits, etc.) still need to be completed. The US tax rate may no longer be one of the highest in the world, and the tax economics of moving business initiatives, and repatriating cash, to the US are welcome thoughts for US based multinationals. However, attention needs to be focused on the details, including Q4 2016 actions that may provide more efficiencies for the expected 2017 US tax reform.
EY’s Global Tax Alert, and the Blueprint are included for reference.