Comparison of Final Versions of Senate and House Tax Bills - Politico
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Comparison of Final Versions of Senate and House Tax Bills
Tax and Public Law and Policy, December 6, 2017
Introduction
Early morning on Saturday, December 2, the Senate passed its version of the Tax Cuts and Jobs Act
(TCJA) by a vote of 51-49. Despite last minute scrambling to appease senators on the fence, Senator Bob
Corker (R-TN) cast the lone Republican “no” vote due to concerns about the deficit impact of the
proposal. This followed on House passage of its version of TCJA prior to Thanksgiving by a vote of 227-
205.
With significant areas of difference between the House and Senate bills, the two bodies have convened
a formal conference committee tasked with resolving these issues.
Conferees for the Tax Cuts and Jobs Act (H.R. 1)
Cmtes of Jurisdiction House Rs House Ds Senate Rs Senate Ds
Ways & Means / Brady (TX), Nunes Neal (MA), Levin
Finance (CA), Roskam (IL), (MI), Doggett (TX) Hatch (UT), Enzi
Black (TN), Noem (WY), Murkowski
(SD) (AK), Cornyn (TX), To be announced
Natural Resources / Bishop (UT), Young Grijalva (AZ) Thune (SD), Portman
Energy & Nat Res (AK) (OH), Scott (SC),
Toomey (PA)
Energy & Commerce Upton (MI)*, Castor (FL)
/ Energy & Nat Res Shimkus (IL)
*Change from original conferee
A few notes on conference committees:
Areas of disagreement between the two bills are intended to be the focus of negotiations and
the addition of new provisions is not allowed
In recent history, most conference committee activity takes place behind closed doors and
largely via staff, with usually one public meeting
The final agreement must be approved by a majority of the conferees (assigned to that
jurisdiction) from each house before heading to a final vote in the House and Senate
Conference reports are debatable, but not amendable on the floor in either the House or Senate
Conferees will have a limited window to come to an agreement on a final version of TCJA before the
self-imposed deadline of December 22. In most cases, the Senate version is expected to prevail since it is
more challenging to pass a bill in the Senate with a slim majority of only two votes. In addition, the
conference will need to consider any final changes to issues like effective dates, provisions with a phase-
in or phase-out, and transition rules. All changes will also need to comply with the Byrd Rule, which
allows for a point of order (60 vote threshold to waive) if any individual provision does not have a
revenue impact that is more than “merely incidental,” is extraneous, or decreases revenue outside the
ten year budget window, among other requirements.
As the conference committee gets underway this week and into next, Republicans are largely united and
resolute in their goal of sending tax reform to the President’s desk before Christmas, but a number of
key differences on business, individual, and international tax reform stand between them and the finish
line. The chart below compares the final versions of both the House- and Senate-passed bills.
Robert S. Strauss Building | 1333 New Hampshire Avenue, N.W. | Washington, D.C. 20036-1564 | 202.887.4000 | fax 202.887.4288 | akingump.comCorporate Changes Comparison (scores over 10 yrs in billions)
12/02/17 Senate-Passed Bill1 11/16/17 House-Passed Bill2
Rates -Flat 20% rate (1/1/19); permanent (-$1,329.2B) -Flat 20% rate (1/1/18); permanent (-$1,456.0B)
-Cut dividends-received deduction (80% to 65%) -Cut dividends-received deduction (80% to 65%)
-Repeal special rate for personal service corps -Rate of 25% on personal service corps
Alternative minimum -Preserve corporate AMT at 20% ($0B) -Repeal corporate AMT(-$40.3B)
tax (AMT) -Because the corporate AMT is the same rate as the
regular corporate tax in 2019, many expect this will be
changed in conference; if the corporate AMT is retained,
even at a lower rate, it should not impact expensing as
those deductions are allowed in computing AMT
Corporate integration -An earlier version included a new dividends-paid -No mention
(reduce double tax on reporting requirement to set the stage for corporate
earnings) integration, but the Senate later took it out
Expensing (full and -Effective for property placed in service 9/28/17 or later -Effective for property placed in service 9/28/17 or later
immediate write-off -Only available for certain short-lived capital investments -Only available for certain short-lived capital
of certain capital such as machinery and equipment (not including used) investments such as machinery and equipment (but
investments) -100% expensing through 2022; 80% expensing in 2023; including used)
60% expensing in 2024; 40% expensing in 2025; 20% -100% expensing through 2022; ends 1/1/23 (-$25.0B)
expensing in 2026 (unless property has longer -Not for regulated public utilities or real property
production period, then 100% through 2023; 80% in business; also not if used new floor plan financing
2024, etc.; special rule for fruit and nut plants) (-$95.3B)
-Not for regulated public utilities (available for real
property business); not if used new floor plan financing
Interest expense -Sec. 163(j) deduction allowed up to 30% of pretax, post- -Sec. 163(j) deduction allowed up to 30% of pretax, pre-
deduction depreciation earnings (EBIT); no grandfather, start ‘18; if depreciation earnings (EBITDA); no grandfather, start
gross receipts $15mil or less, no limit (+$307.5B) ‘18; if gross receipts $25mil or less, no limit (+$171.7B)
-Indefinite carryforward; applies to corps and pships -5-yr carryforward; applies to corps and pships
-Carve-out for regulated utilities and coops; real -Carve-out for regulated utilities and real property
property businesses can elect out; floor plan financing businesses; floor plan financing (expense on debt to
(expense on debt to buy vehicles held for sale) is exempt buy vehicles held for sale) is exempt
-Or Sec. 163(n) thin cap rule (whichever is more -Or Sec. 163(n) thin cap rule (whichever is more
restrictive applies but thin cap only for U.S. corps) would restrictive applies but thin cap only for U.S. corps)
phase-in limit to 110% (in 2022) of the U.S. corp’s share would limit deduction to 110% of the U.S. corp’s share
of net interest expense calculated by reference to the of net interest expense calculated by reference to the
U.S.’s share of global earnings; phased in: 130% in 2018; U.S.’s share of global earnings (+$34.2B)
125% in 2019; 120% in 2020; 115% in 2021 (+$8.4B)
Research and -Preserve, no mention of modifications; but potentially -Preserve, no mention of modifications
develop. (R&D) credit limited by preservation of corporate AMT at 20%
R&D expensing -Require 5-year amortization after 2025 (+$62.1B) -Require 5-year amortization after 2023 (+$108.6B)
(Sec. 174)
Domestic production -Repeal Sec. 199 domestic production deduction -Repeal Sec. 199 domestic production deduction
activities effective 2019 (+$84.4B) effective 2018 (+$95.2B)
NOLs (net operating -NOLs used only to reduce net taxable income by 90% -NOLs used only to reduce net taxable income by 90%
losses) (80% in 2024); repeal 2-yr general carryback, but special -Repeal 2-yr carryback
carryback in cases -Special 1-yr carryback in case of casualty, disaster
-No carryforward limit (+$157.8B) -Carryforward plus interest (+$156.0B)
Inventory accounting -Relaxed inventory accounting for small businesses with -No mention
and last-in, first-out less than $15 million in gross receipts (-$27.6B)
(LIFO) method
New markets -No mention -Terminate 2018 and 2019 allocations
tax credit -Preserve 2018 and 2019 allocations -7-yr phase-out for credits allocated (+$1.7B)
Historic credit -Repeal 10% credit, reduce 20% credit (+$3.1B) -Repeal with a transition (+$9.3B)
Low-income -Adopts changes incl. after casualty loss, no recapture -No mention
housing credit
Opportunity Zones -No tax on rollover gain if invest 10 yrs in zone (-$1.6B) -No mention
SEE PAGE 5 FOR CHART ON ADDITIONAL BUSINESS DEDUCTIONS AND CREDITS
2International Changes Comparison (scores over 10 yrs in billions)
12/02/17 Senate-Passed Bill 11/16/17 House-Passed Bill
Move to territorial -100% exemption of dividends paid by a foreign -100% exemption of dividends paid by a foreign
system for income of corporation to a 10% U.S. shareholder, except for hybrid corporation to a 10% U.S. shareholder (-$205.1B)
foreign subsidiary dividends (-$215.5B)
Deemed repatriation, -Bifurcated (14.49% cash; 7.49% remaining) effected by -Bifurcated (increase to 14% cash; 7% remaining)
one-time transition deduction; treated as Subpart F inclusion effected by deduction; treated as Subpart F inclusion
tax -Due over 8 yrs (8% for each of first 5 yrs, then 15% in yr -Due over 8 yrs (in equal installments of 12.5%)
6; 20% in yr 7, 25% in yr 8) -Can use NOLs; FTCs pro rata (+$293.4B)
-Can use NOLs; FTCs pro rata (+$298.1B)
Global minimum tax -U.S. corp with foreign sub taxed at 20% on the global -U.S. corp with foreign sub taxed at 20% on half of the
to prevent base intangible low-taxed income (GILTI) of its foreign sub “high returns” of its foreign sub (so 10% effective); high
erosion, including with a 50% deduction (so 10% effective); GILTI defined returns defined as: (1) foreign sub aggregate net
changes to Subpart F as: (1) net CFC tested income, minus (2) 10% of basis in income, minus (2) 8% of basis in certain foreign tangible
rules certain foreign tangible property, plus (3) 80% FTC property, minus (3) some net interest expense, plus (4)
**SEE DETAILED limitation (so 12.5% effective) (+$135.0B) 80% FTC limitation (so 12.5% effective) (+$67.5B)
CHART ON PAGE 6 -Plus special patent box like deduction for U.S. corps
with U.S. source income that is foreign derived (such
income is otherwise taxed at 20% in 2019; the 37.5%
deduction results in an effective tax of 12.5%) (-$64.4B)
Other base erosion -Base erosion and anti-abuse tax (BEAT) on U.S. corps -Excise tax on deductible payments between U.S. corp
rules with base erosion percentage of 4% or more (base and foreign affiliate (unless services provided at cost)
**SEE DETAILED erosion payment to foreign affiliate divided by allowed -Tax is 20% of such payments, unless foreign corp treats
CHART ON PAGE 7 deductions) and if $500mil/yr average gross receipts as effectively connected income (ECI) and some
-If it applies, the corporation’s tax liability isn’t 20% of deemed expenses (but no mark-up) allowed
normal taxable income (in 2019) but 10% of taxable -80% FTC limitation to offset tax on ECI
income w/BEAT payments added back in (11% for -Applies if $100mil/yr of payments in grp
certain banks and securities dealers) -Includes payments for COGS, inventory (+$94.5B)
-Does not include payments for costs of goods sold
(COGS), inventory, services provided at cost (+$140.0B)
Offshore reinsurance -Change to insurance business PFIC exception (+$1.1B) -Change to insurance business PFIC exception (+$1.1B)
-Plus other rules impact -Plus other rules impact
Pass-Through Changes Comparison (scores over 10 yrs in billions)
Rates -An individual (not a corp) that is an owner of a pass- -25% rate for certain income of pass-throughs
through business may be able to deduct 23% of qualified -Purely passive owners (tested under the material
pass-through business income effectively connected participation rules of Sec. 469) of active pass-throughs
with a business conducted in the U.S.; does not include have the best result
capital gains, dividends, interest or amounts treated as -Owners of pass-through entities that only earn
reasonable compensation or guaranteed payments; does investment income such as capital gains, dividends and
include certain REIT dividends and distributions from interest or engage in specified service activities will not
certain PTPs (both not subject to the wage cap) benefit
-Expires 2026 (-$477.0B) -Reduced 9% rate for first $75k (to provide added relief
for small businesses) (-$596.6B)
Guardrails to prevent -Deduction is limited to 50% of the individual’s -Owners can elect to apply 25% rate to 30% of income
abuse of special rate proportionate share of the Form W-2 wages paid out by or can prove portion tied to size of the owner’s capital
the pass-through to its employees; not for specified investment if they want more than 30%
service businesses (including investment management, -Unless the owner is a purely passive investor, in which
trading or dealing in securities) as long as income of case 100% of its income is eligible for the 25% rate
$150k+; no W-2 wage cap applies at all for income up to
$500k (both phased)
Expensing -Sec. 179 up from $500k to $1mil begin in 2018, expand -Sec. 179 up from $500k to $5mil to begin in 2018
qual. prop. (-$24.0B) (-$11.4B)
Interest expense -Interest limit computed without regard to 23% pass- -Limit applies at partnership level
deduction through deduction -If average gross receipts $25mil or less, no limit
Carried interest -3-yr holding period (up from 1-yr) for long-term cap -3-yr holding period (up from 1-yr) for long-term cap
gain (+$1.2B) gain (+$1.2B)
Cash method -$5mil raised to $15mil (-$27.6B) -$5mil raised to $25mil (-$30.0B)
Robert S. Strauss Building | 1333 New Hampshire Avenue, N.W. | Washington, D.C. 20036-1564 | 202.887.4000 | fax 202.887.4288 | akingump.comIndividual Changes Comparison (scores over 10 yrs in billions)
12/02/17 Senate-Passed Bill 11/16/17 House-Passed Bill
Rates -7 brackets (10%, 12%, 22%, 24%, 32%, 35%, 38.5%); top -Reduce 7 brackets to 4 (39.6%, 35%, 25% and 12%);
bracket on $1mil+ joint income (-$1,173.8B) top bracket on
-Expires 2026 $1mil+ joint income (-$1,089.4B)
Standard deduction -Enhance std. deduction; preserve additional standard -Enhance standard deduction; repeal additional
deduction; $12k individual; $24k married filing joint standard deduction; $12k individual; $24k married filing
(expires 2026) (-$736.9B) joint (-$921.4B)
-Repeal personal exemptions (until 2026) (+$1,220.6B) -Repeal personal exemptions (+$1,552.1B)
Child tax benefits -Increase child tax credit to $2k; lift start of phase out to -Increase child tax credit to $1.6k; $1k refundable
$500K so many more parents can claim; raise eligibility -For next 5 yrs, family flexibility and non-child
to age 18 instead of 17 (expires 2026) dependents credit of $300
-Preserve child and dependent care tax credit -Child and dependent care credit through 2022
Earned income tax -Preserve EITC -Preserve EITC; but new rules to reduce fraud
credit (EITC)
AMT -Maintain individual AMT, but at higher exemption -Repeal individual AMT (-$695.5B)
amount ($109,400 for married filing joint) (+$132.9B)
Investment income -Increase thresholds for long-term capital gains and -Increase thresholds for long-term capital gains and
(capital gains, qualified dividends rates; index using chained CPI (does qualified dividends rates; index for inflation
dividends) not expire in 2026)
-Preserve 3.8% net investment income tax -Preserve 3.8% net investment income tax
Retirement or savings -No major changes to 401(k)s and IRAs -No major changes to 401(k)s and IRAs
incentives -End backdoor Roth maneuver (+$0.5B) -End backdoor Roth maneuver (+$0.5B)
Higher education -Allow amounts in 529 account to roll into ABLE account -Enhance AOTC
tax benefits -Allow amounts in 529 to be used for elementary and -Prohibit new contributions to Coverdells
secondary expenses up to $10k -Allow amounts in 529 to be used for elementary and
secondary expenses up to $10k
Estate tax and GST tax -Double exclusion from $5mil to $10mil +inflat. (-$83B) -Double exclusion from $5mil to $10mil; full repeal of
-No mention of repeal both in 2024 (-$150.7B)
-Maintain step-up in basis -Maintain step-up in basis
Mortgage interest -Maintain $1mil cap under existing law; repeal for home -Preserve, but $500k cap for new mortgages and
deduction equity refinanced mortgages
State and local tax -Only $10k deduction for property tax, no income or -Only $10k deduction for property tax, no income or
deduction sales sales
Charitable deduction -Preserve, increase limit for some cash contributions -Preserve, with some limitations
Misc. provisions -Preserve adoption tax credit -Preserve adoption tax credit
-Suspend moving expense deduction until 2026, except -Moving expense deduction kept for military only
for military -No property casualty loss deduction, except for
-Limit property casualty loss deduction to disasters only disasters
(until 2026) -No mention of employer-sponsored insurance
-Simplify “kiddie tax”
-No mention of employer-sponsored health insurance
Medical expense -Preserve medical expense deduction, more generous -Repeal medical expense deduction (score included in
deduction floor of expenses in excess of 7.5% of AGI (current law is overall repeal of most itemized deductions)
10%) (-$4.6B)
Members of Congress -Eliminate deduction for Member of Congress’ living -No mention
living expenses expenses (Other Business Revenue Raisers (scores over 10 yrs in billions)
12/02/17 Senate-Passed Bill 11/16/17 House-Passed Bill
Orphan drug -Credit rate at 27.5% instead of 50% (removed provision -Repeal Sec. 45C orphan drug credit (+$54.0B)
requiring reporting) (+$29.9B)
Insurance -Changes include capitalization of certain policy -Preserve current-law treatment of deferred acquisition
acquisition expenses (altered to reduce revenue from costs, reserves and pro-ration, but placeholder revenue
+$23.0B to +$7.2B), adjustment for change in computing line that imposes 8% surtax on life insurance company
reserves (altered to increase revenue from +$1.3B to income (+$23.0B)
+$16.5B) for total (with others) of +$26.9B
Private activity bonds -Repeal exclusion from gross income for advance -Effective repeal, no federal tax interest exclusion for
(PABs) refunding bonds (+$16.8B) future issuances of PABs (+$38.9B)
Entertainment -No deduction allowed for entertainment expenses; only - No deduction allowed for entertainment expenses;
expenses 50% of expenses for meals provided on or near business 50% of expenses for food or beverages or business
premises allowed as deduction; no deduction allowed meals either as de minimis fringe benefit or provided at
for meals provided at convenience of employer; no convenience of employer; no deduction allowed for
deduction allowed for transportation and commuting qualified transportation fringe benefit or on-premises
benefits, among others (+$40.3B) athletic facility, among others (+$33.8B)
Like-kind -Keep Sec. 1031 for only real property (but strike for -Keep Sec. 1031 for only real property (+$30.5B)
certain mutual ditch, reservoir and irrigation companies,
with negligible revenue effect) (+$30.6B)
Nonqualified deferred -Preserve current-law treatment of NQDC and provide -Preserve current-law treatment of nonqualified
comp (NQDC) new equity grant inclusion deferral election (-$1.2B) deferred compensation (+$0B)
Renewable energy tax -Preserve PATH Act treatment -Repeal inflation adjustment effective today for Sec. 45
provisions production tax credit
-Phase out Sec. 45 production tax credit (+$12.3B)
Paid-in capital -No mention -Contributions of money or property to a corporation or
partnership in exchange for an ownership interest are
taxable to the extent they are not value-for-value
(+$7.4B)
U.S. territories -Modification to source rules involving U.S. -Extend Puerto Rico rum excise tax benefit (+$0.9B)
territories/possessions (-$0.6B)
Nonprofit tax changes -(UBTI) unrelated business taxable income computed -Super tax exempts such as state and local retirement
separately for each trade or business (+$3.2B) plans (pension funds) subject to UBTI (+$1.1B)
-Impose excise tax on investment income of private -Impose excise tax on investment income of private
higher ed for $500k+ asset-per-student (+$1.8B) higher ed for $250k+ asset-per-student (+$2.5B)
Real estate -Dividends from a REIT are qualified items of income for -Would get special treatment under the new pass-
investment trusts purposes of the 23% deduction at the individual level (no through rate; maximum 25% rate on certain REIT
(REITs) score) dividends (score not specified)
Deductibility of fines, -Some settlement payments no longer deductible -No mention
penalties (+$0.1B)
Foreign aircraft -Provision to tax certain aircraft operated by foreign -No mention
operators corps removed from final version
Sexual harassment -Deny deduction for settlement subject to a -No mention
settlement payments nondisclosure agreement paid in connection with sexual
harassment (+Comparison of International Anti-Base Erosion Measures:
Global minimum tax on foreign-source intangible income
12/02/17 Senate-Passed Bill 11/16/17 House-Passed Bill
Provision(s) Sec. 14201: Current inclusion of global Sec. 4301: Current year inclusion by United
intangible low-taxed income by United States shareholders with foreign high
States shareholders returns (FHR)
and Sec. 14202: Deduction for foreign-
derived intangible income and GILTI
Also known as 12.5% GILTI min tax 12.5% FHR min tax
and 37.5% patent box like deduction
Paid by U.S. shareholder of controlled foreign corp U.S. shareholder of controlled foreign corp
Treated as a Subpart F deemed income inclusion Subpart F deemed income inclusion
Tax Code Section 951A and Section 250 Section 951A
Effective tax rate on what -Effective 12.5% (20% tax + 50% GILTI -12.5% of the portion of otherwise untaxed
income (and calculation deduction = 10% plus 80% FTCs = an (in the U.S.) income earned by a U.S. parent’s
mechanism) additional 2.5%) of the otherwise untaxed (in foreign subsidiary minus 8% of its foreign
the U.S.) income earned by a U.S. parent’s tangible property (but technically must pay
foreign subsidiary minus 10% of its foreign 20% tax on 50% of all foreign high returns,
tangible property (50% GILTI deduction with 80% deemed paid FTC that adds 2.5%)
reduced to 37.5% in 2026—so effectively
increased to 15% in 2026, including 80% FTC)
Offsetting benefit for IP in -Patent box like deduction of 37.5% (to effect -None, this actually creates an incentive for
the U.S. (but Senate an overall rate of 12.5%) for foreign-derived U.S. multinationals to make high-basis
drafted to apply more intangible income of a domestic corp through tangible investments outside the United
broadly) 2025 (to get U.S. multinationals to relocate States
their offshore IP to the U.S.) but drafted such
that its benefit could be broader if high U.S.
income from exports and low U.S. tangible
property basis
-Deduction reduced to 21.875% in 2026 (to
effectively increase the rate to 15.625%)
-Eligible foreign derived income includes
income from property for foreign use or
foreign services; does not include Subpart F
Proxy for foreign -“Global intangible low-taxed income” -“Foreign high return amount” defined as
intangible income defined as share of net CFC income minus share of net CFC income minus about 8%
10% basis in certain foreign tangible property basis in certain foreign tangible property
(but no reduction for net interest expense) minus some net interest expense
FTCs allowed -Yes, for 80% of foreign income taxes deemed -Yes, for 80% of foreign income taxes deemed
paid but limited by the inclusion percentage paid but limited by the inclusion percentage
and no carryforward or carryback is available and no carryforward or carryback is available
-GILTI is separate basket for FTC purposes (so -FHR is separate basket for FTC purposes (so
cannot be netted with lower-taxed income) cannot be netted with lower-taxed income)
JCT revenue score +$135.0 billion 2018-2027 for GILTI min tax +$67.5 billion 2018-2027
-$64.4 billion 2018-2027 for 37.5% deduction
net +$70.6 billion 2018-2027
6Comparison of International Anti-Base Erosion Measures: Related party payments
12/02/17 Senate-Passed Bill 11/16/17 House-Passed Bill
Provision Sec. 14401: Base erosion and anti-abuse tax Sec. 4303: Excise tax on certain payments
from domestic corps to related foreign
corps; election to treat such payments as ECI
Also known as 10% BEAT alternative minimum tax regime 20% excise tax on U.S. corp, no deductions
(up to 12.5% in 2026) or 20% ECI on foreign with deductions, FTCs
Paid by U.S. corp that makes deductible payments to -U.S. corp that makes deductible payments to
a foreign affiliate (could be within a U.S.- a foreign affiliate (could be within a U.S.-
parented group or a foreign-parented group) parented group or a foreign-parented group)
-Unless ECI election, then foreign affiliate
pays tax reduced for deemed expenses
Not applicable if -U.S. corp has average annual gross receipts -The international financial reporting group
of less than $500 million for prior 3-yr period containing the U.S. corp and the foreign
-U.S. corp is a RIC, REIT or S corp affiliate has an average annual aggregate
-Deductible payments to foreign affiliates payment amount (for payments subject to
(base erosion payments) account for less than the excise tax) of $100 million or less for prior
4% of total deductible expenses (adjusted) 3-yr period
Payments include (not -Hits royalties, management fees, reinsurance -Hits royalties, management fees, reinsurance
exclusive) -Hits payments for services, unless no markup -Hits payments for services, unless no markup
-NOT payments for cost of goods sold -Hits payments for cost of goods sold
-Hits a portion of interest expense payments -NOT interest expense
-Exception for qualified derivative payments
Tax Code Section 59A, Section 6038A Section 4491, Section 882(g), Section 6038E
Effective tax rate on what -An alternative minimum tax regime—the -20% of the deductible payments made to a
income (and calculation total U.S. income tax due is whichever is foreign affiliate, without adjustments
mechanism) greater: 1) Regular tax liability (20% imposed (effectively negating the benefit of the
on taxable income, but reduced by certain original deduction) paid by U.S. corp
excess credits), OR 2) 10% of taxable income -Or, if ECI election is made, 20% of the
after all deductible foreign affiliate payments payments received by the foreign affiliate and
(base erosion payments) are added back in treated as ECI, with a deduction allowed for
(but lose business tax credits other than R&E, deemed expenses, paid by foreign corp
and increase to 12.5% beginning in 2026)
-Rate increased to 11% (and 13.5% in 2026)
for certain banks and securities dealers
FTCs allowed No Yes, if ECI election is made, 80% FTC, but
measured by reference to current Section
906 (not financial accounting-based formula)
Deemed expenses Not applicable Yes, if ECI election is made, but mark-up
allowed eliminated and expenses calculated by
reference to the net income ratio of the
foreign corp as compared to the international
group (ltd to payment’s related product line)
Related party defined as -Any 25% owner of U.S. corp Any member of an international financial
-Any entity that owns (directly or indirectly) reporting group (prepares consolidated
more than 50% of U.S. corp or a 25% owner financial statements) is related to others
Reporting regime Additional reporting requirements added to New Section 6038E reporting requirements to
Section 6038A to identify related party trans identify common parent and payment detail
JCT revenue score +$140.0 billion 2018-2027 +$94.5 billion 2018-2027
7Contact Information
If you have any questions concerning this alert, please contact:
Stuart E. Leblang Brian Pomper
Partner Partner
sleblang@akingump.com bpomper@akingump.com
212.872.1017 202.887.4134
Jeffrey D. McMillen G. Hunter Bates
Partner Partner
jmcmillen@akingump.com hbates@akingump.com
202.887.4270 202.887.4147
Donald R. Pongrace Arshi Siddiqui
Partner Partner
dpongrace@akingump.com asiddiqui@akingump.com
202.887.4466 202.887.4075
Lauren O'Brien Geoffrey K. Verhoff
Senior Policy Advisor Senior Policy Advisor
lauren.obrien@akingump.com gverhoff@akingump.com
202.887.4046 202.416.5012
Ryan Ellis Amy S. Elliott
Policy Advisor Senior Attorney
ryanleonardellis@gmail.com aelliott@akingump.com
202.887.4000 202.887.4039
1
For the Senate-passed version of H.R. 1, see https://www.finance.senate.gov/imo/media/doc/12.2.17%20HR%201.PDF; for the Joint Committee
on Taxation’s score of the Senate-passed version of H.R. 1 (JCX-62-17), see https://www.jct.gov/publications.html?func=startdown&id=5046
(although it only notes changes to an earlier score, JCX-59-17, available at https://www.jct.gov/publications.html?func=startdown&id=5043);
for a November 9 description of the preliminary Senate bill as prepared for mark-up by the Finance Committee, see
https://www.jct.gov/publications.html?func=startdown&id=5032.
2
Four primary documents associated with the reform plan were released November 2. They are (1) the draft legislative text of the bill (available at
https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf); (2) a section-by-section summary of the major provisions of the bill, produced
by Ways and Means (available at https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section.pdf); (3) a
shorter descriptive summary of the bill produced by Ways and Means (available at
https://static1.squarespace.com/static/598e0867be42d6f782347394/t/59fb4a0b27ef2d9f3f9a0a12/1509640715893/WM_TCJA_PolicyOnePagers
%5B7%5D.pdf); (4) and a preliminary revenue table (the so-called score) produced by the Joint Committee on Taxation (available at
https://www.jct.gov/publications.html?func=download&id=5026&chk=5026&no_html=1). On November 3, the amendment in the nature of a
substitute to H.R. 1 (AINS) was released (available at https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-Amendment-in-
the-Nature-of-a-Substitute-to-H.R.-1.pdf) along with an updated score from the Joint Committee on Taxation
(https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-JCT-Estimated-Revenue-Effects-of-Amendment-in-the-Nature-of-a-
Substitute-to-H.R.-1.pdf). For Brady’s first amendment to the AINS released November 6, see
https://waysandmeansforms.house.gov/uploadedfiles/chairman_brady_amendment.pdf. For Brady’s second amendment to the AINS released
November 9, see https://waysandmeansforms.house.gov/uploadedfiles/chairman_amendment_2.pdf. For the JCT’s score of the bill as ordered
reported by House and Means November 9 (the score is dated November 11), see
https://www.jct.gov/publications.html?func=startdown&id=5034).
© 2017 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it
does not constitute legal advice and should not be used as such. In addition, any tax advice contained in this communication may not be used to
promote, market or recommend a transaction to another party. Lawyers in the London office provide legal services through Akin Gump LLP,
practicing under the name Akin Gump Strauss Hauer & Feld. Akin Gump LLP is a New York limited liability partnership and is authorized and
regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops
Square, London E1 6EG. Lawyers in the Hong Kong office provide legal services through Akin Gump Strauss Hauer & Feld, a firm of solicitors which
is regulated by the Law Society of Hong Kong. Their registered office is Units 1801-08 & 10, 18th Floor Gloucester Tower, The Landmark, 15
Queen’s Road Central, Central, Hong Kong. Akin Gump Strauss Hauer & Feld LLP, a limited liability partnership formed under the laws of Texas,
USA, operates under the laws and regulations of numerous jurisdictions both inside and outside the United States. The Beijing office is a
representative office of Akin Gump Strauss Hauer & Feld LLP.
Robert S. Strauss Building | 1333 New Hampshire Avenue, N.W. | Washington, D.C. 20036-1564 | 202.887.4000 | fax 202.887.4288 | akingump.comYou can also read
