Senate to Consider Business Tax Reform Proposals
Following multiple hearings on tax reform thus far this year in the House Ways and Means Committee, this week the Senate Finance Committee will hold a hearing on business tax reform. During the hearing, the difference between Republican and Democrat approaches to taxing corporate income, including what the top rate on corporations should be, will be on full display. In advance of the hearing, the Joint Committee on Taxation (JCT) has released an overview of various proposals for business tax reform, including: (1) the President’s framework; (2) reforms that both maintain and change the structure of the current business tax regime; and (3) proposals to shift to a consumption-based regime. As part of the Committee’s efforts on business tax reform, Senator Orrin Hatch (R-UT) last week reaffirmed his commitment to move forward with his “corporate integration” proposal by the end of June, noting that he is still awaiting a score from JCT before proceeding. For his part, Senate Finance Committee Ranking Member Ron Wyden (D-OR) this week is expected to introduce a proposal that would modify current corporate depreciation schedules – something former Senate Finance Committee Chairman Max Baucus (D-MT) also did during his time in the Senate.
As for tax reform efforts in the House, Ways and Means Committee Chairman Kevin Brady (R-TX) has announced his plans to release a comprehensive tax reform “blueprint” by June of this year as part of Speaker Paul Ryan’s (R-WI) tax reform task force efforts, while Representative Charles Boustany (R-LA) is expected to continue with his efforts on international tax reform – though whether we will see any action this year on his plan remains to be seen.
Notably, as both House and Senate tax-writers debate the best path forward for tax reform, Republicans lawmakers are pushing for the adoption of Representative Bob Goodlatte’s (R-VA) plan (H.R. 29, Tax Code Termination Act) that would repeal the Internal Revenue Code by 2019 and require Congress to approve a new system of taxation by July of that year. While the future of this legislation is uncertain – and no Senate counterpart exists – there are presently more than 130 co-sponsors in the House.
This Week’s Hearings:
- Tuesday, April 26: The Senate Finance Committee will hold a hearing titled “Navigating Business Tax Reform.”
Treasury Open to “Intense Comment Period” on Inversion Regulations
Following intense scrutiny and pushback from industry, last week Treasury Deputy Assistant Secretary Bob Stack acknowledged that Treasury “may have missed things” in its latest rulemaking targeting inversions and the ability of multinational corporations to engage in so-called “earnings-stripping” practices. This acknowledgement comes at the same time that 18 former Treasury officials sent a strongly-worded letter to Treasury Secretary Jack Lew urging his Department to focus on reforming the tax Code, not on inversions as a standalone issue.
In looking ahead, Mr. Stack has promised that Treasury “will have an intense comment period, [and] be listening to taxpayers.” He also suggested that Treasury “want[s] to do things that are both right from a policy point of view and also minimize burdens on companies…[but] [t]he answer to inversions is not to join the race to the bottom so that we have ultimately a zero tax rate.” Notably, Internal Revenue Service (IRS) Commissioner John Koskinen has indicated that the IRS does not intend to put out any “significant” regulations past Labor Day, which creates a rather tight timeframe for Treasury to digest the responses to its proposed regulations and still finalize the regulations this year.
Separately, partly spurred by fallout from the “Panama Papers” fiasco, the Treasury Department has announced that it also soon plans to finalize rules proposed in 2014 that would require the beneficial owners of single-member LLCs to identify themselves to the IRS. According to Treasury Secretary Lew, this, along with widespread implementation of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project and its proposal to require country-by-country reporting of certain tax information by large multinational corporations will help combat tax evasion.