December 18, 2017
As anticipated, on Friday evening the ongoing Conference Committee between the House and Senate came to a close, and their final version of the Tax Cuts and Jobs Act was released to the public. Though the Conference adhered heavily to the Senate version of the act because of the Senate’s narrower majority of Republicans, the Conference made significant compromises in a number of key areas in the bill.This edition of Tax Advisor Weekly highlights the key corporate provisions along with some initial insights. See below for:
- a chart of the core provisions affecting corporations
- a handful of other noteworthy changes
- an important list of notable omissions from the Conference Committee bill
Other Notable Business and International Rules:For multinationals with intra-company debt and licensing arrangements, new hybrid transaction rules may disallow deductions for interest and royalty payments to related parties where the related recipient is not subject to local tax on the corresponding income.
- This coincides with the similar base erosion and profit shifting (BEPS) initiative.
- Many U.S. companies will look to restructure their internal debt and licensing arrangements.
- Companies contemplating outbound transfers of trade or business assets (including goodwill and going concern value) might look to accelerate any such transfers to occur in 2017.
- This will subject more U.S. persons to the toll charge than expected, as well as global intangible low-tax income (GILTI), Section 956 and other remaining Subpart F inclusions (even some for 2017).
- Companies will need to brace U.S. owners for significantly increased phantom income and compliance burdens going forward.
- These amendments tend to be unfavorable to taxpayers.
- Some companies may be accelerating intangibles transfers to occur prior to the effective date of the amendments, though such transfers should be undertaken cautiously in light of existing regulations.
- The Senate bill provision, coupled with the reductions in U.S. tax rates, would have created an incentive (or reduced the disincentive) for U.S. multinationals to bring IP back to the U.S.
- Combined with the other international provisions, many companies may not wish to move IP back to the U.S. as a result of this omission.
- It is not clear if this was intentional by the Conference Committee.
- Many taxpayers could be surprised by the effect, i.e., eliminating the participation exemption for foreign earnings. Note that the current look-through rules remain valid for most companies through 2019.
- Many companies will be immediately pursuing traditional planning to avoid these negative consequences.