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November 15, 2017
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The landscape of tax reform continues to change, with further mark-ups, compromises, and changes occurring in the near future. But we believe it important to communicate to you where we are now. Below is a detailed comparison of the Senate proposed tax legislation (released on November 13, 2017) as compared to the House proposed tax legislation, which includes mark-ups.

Topic

House Bill (H.R. 1)

Senate Plan

100% Deduction for Foreign-Source Portion of Dividends

100% deduction for foreign-source portion of dividends received from “specified 10-percent owned foreign corporations” by U.S. shareholders.

100% deduction for the foreign-source portion of dividends received from “specified 10- percent owned foreign corporations” by domestic corporations that are U.S. shareholders, subject to a greater than one-year holding period. No foreign tax credit or deduction permitted for foreign taxes paid or accrued with respect to a qualifying dividend.  Deduction unavailable for “hybrid dividends.” Effective for taxable years beginning after December 31, 2017.                                                

Deemed Repatriation

Accumulated foreign earnings held in cash or cash equivalents and in illiquid assets are deemed repatriated and taxed at 12% and 5% respectively. Taxpayer may elect to pay resulting liability over 8-year period in equal annual installments of 12.5% of the total tax liability due. Effective for distributions made after 2017.

Accumulated foreign earnings held in cash or cash equivalents and in illiquid assets deemed repatriated and taxed at 10% and 5%, respectively ("mandatory inclusion"). No foreign tax credit or deduction for foreign taxes paid or accrued with respect to taxable portion of mandatory inclusion. Taxpayer may elect to pay resulting liability over 8-year period. Payments for each of the first 5 years equal 8% of the net tax liability and payments for the 6th year equal 15% of the net tax liability, increasing to 20% for the 7th payment and 25% for the 8th and final payment. Limitations period for assessment of tax on such mandatory inclusions extended to six years. Recapture rule imposing 35% tax rate on mandatory inclusions of a U.S. shareholder that becomes an expatriated entity within 10 years of bill’s enactment. Effective for last taxable year of foreign corporations beginning before January 1, 2018 and all subsequent taxable years.     

Sales and Transfers by Certain Foreign Corporations

Limitation on Losses on Sale of 10 percent Owned Foreign Corporations. A U.S. parent must reduce the basis of its foreign subsidiaries (by the amount of any exempt dividends (as under new law) for purposes of determining the amount of loss (but not gain). Effective for transfers after 2017.

Reduction of basis in stock of specified 10-percent foreign corporation to extent of exempt dividends for purposes of determining loss upon sale of stock. Effective for taxable years beginning after December 31, 2017. Inclusion in income by U.S. shareholders of loss amount transferred from foreign branch to specified 10-percent foreign corporation. Effective for transfers after December 31, 2017.

Foreign Tax Credit

Repeal of indirect foreign tax credit under §902. No foreign tax credit or deduction permitted for taxes paid or accrued with respect to exempt dividends. Income from sale of inventory sourced based solely on basis of production activities. Effective for tax years beginning after 2017.

Repeal of indirect foreign tax credit under §902 with respect to exempt dividends. Effective for taxable years beginning after December 31, 2017. Deemed paid credit for foreign taxes attributable to Subpart F inclusions. Determination of foreign tax credit under §960 on a current-year basis. Addition of separate foreign tax credit limitation basket for foreign branch income. Acceleration of effective date of worldwide interest allocation election by three years. Income from sale of inventory sourced based solely on basis of production activities.

 

Effective for taxable years beginning after December 31, 2017.

Subpart F

Repeal of current taxation of investments in U.S. property by U.S. corporate shareholders under Sec. 956. Effective for tax years beginning after 2017. Repeal of foreign base company oil related income as subpart F income under §954.Effective for years beginning after 2017. Inflation adjustment of de minimis exception threshold for foreign base company income. Effective for years beginning after 2017. CFC look-through exception made permanent. Effective for years beginning after 2019. Stock attribution rules for determining CFC status modified to treat a U.S. corporation as constructively owning stock held by its foreign shareholder

 

Effective for years beginning after .2017.Elimination of 30-day rule in §951(a)(1). Effective for years beginning after 2017..

Exception to §956 for domestic corporations that are U.S. shareholders in a CFC either directly or through a domestic partnership. Repeal of foreign base company oil related income as Subpart F income under §954. Inflation adjustment of de minimis exception threshold for foreign base company income. Effective for taxable years beginning after December 31, 2017.

 

CFC look-through exception made permanent. Effective for taxable years beginning after December 31, 2019. Stock attribution rules for determining CFC status modified to treat related U.S. person as constructively owning stock held by foreign shareholder of foreign corporation. Effective for last taxable year beginning before January 1, 2018. Elimination of 30-day rule in §951(a)(1). Effective for taxable years beginning after December 31, 2017. Repeal of current taxation of previously excluded qualified investments under §955. Effective for taxable years beginning after December 31, 2017. Expanded definition of U.S. shareholder to include any U.S. person owning at least 10% of the total value of all stock of a foreign corporation. Effective for last taxable year beginning before January 1, 2018.          

Base Erosion

U.S. shareholders of CFCs subject to current U.S. taxation on 50% of “foreign high return amounts.” Deductible net interest expense of a U.S. corporation that is a member of an “international financial reporting group” limited based on a U.S. corporation’s share of group’s EBITDA. Excise tax of 20% imposed on certain payments made by a U.S. corporation to a related foreign corporation, unless a U.S. corporation elects to treat the payments as effectively connected income. Payments (other than interest) that are deductible, includible in costs of goods sold, or includible in the basis of a depreciable or amortizable asset subject to the 20% excise tax. Effective for tax years effective after 2017.

Deductible interest expense of a U.S. corporation that is a member of a “worldwide affiliated group” reduced based on the U.S. corporation’s net interest expense and the group’s “debt-to-equity differential percentage.” Effective for taxable years beginning after December 31, 2017. Revised definition of intangible property for purposes of §367(d) and §482 and confirmation of Commissioner’s authority to specify methods used to value intangible property. Effective for taxable years beginning after December 31, 2017.

 

Denial of deduction for certain related-party amounts paid or accrued in hybrid transactions or with hybrid entities. Effective for taxable years beginning after December 31, 2017. Repeal of domestic international sales corporation (DISC) and interest charge domestic international sales corporation (IC-DISC) provisions. Effective for taxable years beginning after December 31, 2018. Dividends received by an individual shareholder of a "surrogate foreign corporation" not eligible for qualified dividend rates under §1(h). Effective for taxable years beginning after December 31, 2017. Tax imposed on “base erosion payments” paid or accrued by a taxpayer to a foreign related person. Effective for taxable years beginning after December 31, 2017. Additional reporting requirements under §6038A. Effective for taxable years beginning after December 31, 2017.

Passive & Mobile Income

U.S. shareholders of CFCs subject to current U.S. taxation on 50% of “foreign high return amounts.” Deductible net interest expense of a U.S. corporation that is a member of an “international financial reporting group” limited based on a U.S. corporation’s share of group’s EBITDA. Excise tax of 20% imposed on certain payments made by a U.S. corporation to a related foreign corporation, unless a U.S. corporation elects to treat the payments as effectively connected income. Payments (other than interest) that are deductible, includible in costs of goods sold, or includible in the basis of a depreciable or amortizable asset subject to the 20% excise tax. Effective for tax years effective after 2017.

 

Limitation on Losses on Sale of 10 percent Owned Foreign Corporations. A U.S. parent must reduce the basis of its foreign subsidiaries (by the amount of any exempt dividends (as under new law) for purposes of determining the amount of loss (but not gain). Effective for   transfers after 2017.

U.S. shareholders of CFCs subject to current U.S. taxation on “global intangible low-taxed income” (GILTI). Foreign tax credit permitted for a portion of foreign taxes deemed paid with respect to GILTI. Separate foreign tax credit basket for GILTI. Effective for taxable years beginning after December 31, 2017. Deduction permitted for domestic corporations with respect to a portion of the sum of its GILTI and "foreign-derived intangible income." Effective for taxable years beginning after December 31, 2017. Basis adjustment rules for transfers of intangible property from CFCs to U.S. shareholders. Effective for taxable years beginning after December 31, 2017.

PFICs

PFIC insurance exception restricted to foreign corporations that would be taxed as an insurance company if they were U.S. corporations and if loss and loss adjustment expenses, unearned premiums, and certain reserves exceed 25% (or 10% in certain circumstances) of the foreign corporation’s total assets. Effective for years after 2017.

PFIC insurance exception restricted to foreign corporations that would be taxed as an insurance company if they were U.S. corporations and if loss and loss adjustment expenses, unearned premiums, and certain reserves exceed 25% (or 10% in certain circumstances) of the foreign corporation’s total assets. Effective for taxable years beginning after December 31, 2017.

Interest Expense Allocation

Not addressed.

U.S. affiliated group members required to allocate interest expense based on the adjusted tax basis of assets rather than the fair market value of assets for purposes of §864(e). Effective for taxable years beginning after December 31, 2017.