US proposed Tax reform. December 2017

Transcription

1 US proposed Tax reform December 2017

2 The Tax wars מלחמת המיסים"

3 Legislative process and timeline November November/December December/early 2018 House Senate Office of the President of the United States Full House passed its version of the Tax Cuts and Jobs Act November 16 Full Senate passed its amended version of the Tax Cuts and Jobs Act December 2 Bill now goes to the House for consideration. Options: 1. House passes bill without additional changes 2. Formal / informal conference 3. Amendment exchange (so called ping pong) where House/Senate trade bills Two chambers reconcile differences and pass a final bill December/early 2018 Congress sends President a unified bill after the same bill has been passed by both chambers of Congress President signs bill into law 3

4 Business tax highlights of tax reform bills US House of Representatives US Senate 20% corporate rate, beginning 2018; AMT repealed 25% tax rate generally applied to passive business activity income plus capital percentage (generally 30%) of active income Limits interest deduction to 30% of earnings before interest, tax, depreciation and amortization (EBITDA) with additional limit based on global groupincome Immediate expensing five years Expands definition of covered employee( 162m) Establishes territorial exemption system for dividends received by US corporations from 10%-owned foreign corporations Transition tax on deferred foreign earnings: 14% /7% New broad-based anti-deferral provision taxes foreign high return amount (FHRA) on a current basis at 10% effective tax rate (some foreign tax credits (FTCs)available) 20% excise tax on certain deductible payments torelated foreign persons with alternative effectively connected income (ECI election) 20% corporate rate, beginning 2019; AMT retained 23% deduction for domestic qualified business income from a partnership, S corporation, or asole proprietorship Limits interest deduction to 30% of earnings before interest and tax (EBIT) with additional limit based on global debt to equity (phased in) 100% bonus depreciation five years; additional fiveyear phase out (20% reduction each year starting in2023) Expands definition of covered employee( 162m) Establishes territorial exemption system for dividends received by US corporations from 10%-owned foreign corporations Transition tax on deferred foreign earnings: 14.5% / 7.5% New broad-based anti-deferral provision taxes global intangible low-taxed income (GILTI) on a current basis at 10% effective tax rate (some FTCsavailable) New deduction for foreign-derived intangibleincome Anti-base erosion measures include minimum tax of 10% or 11%, applied on income determined after adding back deductible payments made to related foreignpersons 4

5 Tax Accounting considerations Reduction in tax rates 100% capital expensing ETR and cash tax Discrete event in enactment period; recognized in continuing operations, roll forward DTA to enactment date Non GAAP Impact on ETR Senate bill gradual decrease Impact on current tax provision and DTL Update ETR and cash tax model considering elimination of repealed or restricted deductions and credits (199, WOTC, 162(m), etc.) Interest limitation NOL Transition tax Impact on ETR and DTA, consider VA impact on VA of repealed carryback, unlimited statute of limitation E&P study for current provision, FTC/NOL utilization, BS classification (8 years), impact on UTP Territorial tax system VA considerations Other considerations Impact on permanently reinvested, w/h tax accrual AMT and FTC credit carryforward Forecast impact of anti-deferral provisions (GILTI and FHRA) on ETR Impact of excise tax/ BEAT on ETR, hybrid tax consideration State taxes 5

6 Timeline Bill becomes law December 23, 2017 Press Release 10-K Q1 press release FY17 Tax Return Critical Start now s

7 Considerations Management Plan the work Identify implementation requirements in and out of tax Identify Stakeholders Reach agreement with management Reach agreement to approach with the audit firm Educate Stakeholders (internal and external) Technical work Identify the deferred that will turn in FY17 v. FY18 and beyond Identify a method to revalue the balance sheet that will turn in FY18 and beyond Develop a method to quantify the 9.27 expensing provisions? How might new law impact the state provisions and how should one approach at year end? Calculate the transition tax. Develop an approach to the outside basis differences and withholding taxes etc. Inventory and analyze attributes will the realizabilty of any of these changes (consider valuation allowances) Evaluate the overall VA position under new rules Evaluate the FIN 48 positions for any changes that might result from new law Disclosures and Communication Start to mark up the 10- K and think about disclosures. Other communications- How to prepare management for Q&A to various stakeholders Executive Compensation matters 404 considerations Evaluate the companies the internal control environment for this type of change? How will the internal controls be documented to show they are operating? FY 18 Model under new law Calculate the minimum tax Calculate the GILTI amounts Calculate the interest expense limitation Calculate the impact of full expensing. Analyze the impact of AMT Calculate any other new provisions (M&E, Section 199, etc.) Calculate the executive compensation provisions Develop a plan for state calculations with potential change in mid- year. Develop a plan to monitor outside basis on cfcs Analyze the possible creation of new attributes and realizability