2018 Homebuilder CFO Roundtable. Wynn Las Vegas 7 May 2018

Transcription

1 2018 Homebuilder CFO Roundtable Wynn Las Vegas 7 May

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2018 Ernst & Young LLP. All Rights Reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. 2

3 Tax update Howard Goldstein Ernst & Young LLP Chase Lewis Ernst & Young LLP McRae Thompson Ernst & Young LLP Clark Welton Ernst & Young LLP Andrea Whiteway Ernst & Young LLP 3

4 Overview of key business tax provisions included within H.R.1 (Tax Cuts and Jobs Act) US tax reform enacted 4

5 Federal Corporate tax rate and corporate alternative minimum tax (AMT) Interest expense deduction Establishes a flat corporate income tax rate of 21% to replace current rates that range from 15% to 35% Eliminates corporate AMT Corporations that previously were subject to the AMT are eligible for a refundable credit (subject to limitations until 2022) against their regular tax liability Limits the deduction for net interest expense to 30% of adjusted taxable income (ATI) for that year; aside from special rules, business interest that is disallowed is carried forward indefinitely ATI is generally computed without regard to any item of business interest, net operating loss deduction and in the case of tax years beginning before 1 January 2022, any deduction allowable for depreciation, amortization or depletion; regulated utilities generally excepted Exception available to electing real estate trades or business and certain small taxpayers Immediate expensing Allows immediate write-off of qualified property placed in service after 27 September 2017 and before The increased expensing would phase down starting in 2023 by 20 percentage points for each of the five following years. Eliminates original use requirement. Qualified property excludes certain public utility property and floor plan financing property. Taxpayers may elect to apply 50% expensing for the first tax year ending after 27 September

6 Federal Net operating losses (NOLs) Limits the maximum deduction for NOL carryforwards arising in tax years beginning after 31 December 2017 to 80% of the taxpayer s taxable income for future tax years; allows any NOLs generated in tax years beginning after 31 December 2017 to be carried forward indefinitely The new law generally repeals carryback provisions for NOLs generated after 31 December 2017 NOLs generated in tax years before 1 January 2018 are subject to current expiration periods and are not limited Like-kind exchanges Limits the like-kind exchange rules to exchanges involving real property only; no longer applicable to exchanges of tangible personal property or intangible property Current law applies to exchanges if property disposed of on or before 31 December 2017 or the property received in the exchange is received on or before such date Dividends received deduction (DRD) Reduces the DRD for dividends received from 20% owned corporations from 80% to 65% Reduces the DRD for dividends received from less than 20% owned corporations from 70% to 50% 6

7 Federal Section 179 expensing Increases to $1 million for qualified property placed in service in tax years beginning after 2017, with a phaseout beginning at $2.5 million; expands qualified property to include certain depreciable personal property used to furnish lodging, and improvements to nonresidential real property (such as roofs, heating and property protection systems) Research credit Retains research credit Requires specified research and experimentation (R&E) expenditures paid or incurred after 31 December 2021 to be capitalized and amortized over a 5-year period, and a 15-year period for specified R&E conducted outside of the United States; R&E specifically includes expenses for software development Domestic production deduction (current law Section 199) Repeals deduction for tax years after

8 Federal Work Opportunity Tax Credit (WOTC), New Markets Tax Credit (NMTC), Low-Income Housing Tax Credit (LIHTC) Retains current law for WOTC, NMTC and LIHTC; however, modifies rehabilitation credits for old and/or historic buildings Contributions to capital Retains Section 118; clarifies that such contributions do not include any contribution in aid of construction, any other contribution made by non-shareholders and any contribution made by any governmental entity or civic group. Clarification would generally apply to contributions made after the date of enactment Orphan drug credit Reduces credit to 25% and generally would need to exceed 50% of the average expenses over a three-year period; reduced credit applies to amounts paid or incurred in tax years beginning after 31 December

9 Federal Accounting methods Requires an accrual-method taxpayer to recognize income that is subject to the all-events test no later than the tax year in which the income is taken into account on the taxpayer s financial statements (except for income from mortgage servicing rights) Rule applies in lieu of the original issue discount rules but retains other special methods of accounting for income recognition; includes other business accounting method provisions applicable to small businesses Energy provisions Does not repeal any conventional energy tax credits and leaves untouched the deductibility of intangible drilling costs, taxpayers eligibility to take percentage depletion and the designation of certain natural resource-related activities as generating qualifying income under the publicly traded partnership rules Exempt organizations Makes changes to a number of provisions related to tax-exempt entities, including imposing an excise tax on executive compensation over $1 million, requiring unrelated business taxable income to be computed separately for each line of business with any loss allocable only to the line from which it arose and repealing the substantiation exception for certain contributions 9

10 Federal Deductibility of executive compensation Section 162(m) Covered employees would include the CEO, CFO and the three highest-compensated officers Eliminates the performance-based compensation exceptions and extends deduction limitation to deferred compensation paid to executives who previously held "covered employee" positions Expands applicability of the deduction limitation to certain foreign private issuers and private companies that have publicly traded debt Provides a transition rule for compensation paid pursuant to a plan under a written binding contract that is in effect on 2 November 2017 and is not materially modified thereafter Fringe benefits Business entertainment activities and membership dues, transportation or commuting expenses are not excludable from income or deductible by the employer Employee achievement awards may not be deducted or excluded from income if the award is paid in cash, gift cards, meals, lodging, tickets, securities or other similar items No longer exempts employer-provided eating facilities from 50% deduction limitation; in 2026, deductions are completely disallowed for employer-provided eating facilities and meals provided for the convenience of the employer 10

11 International Dividends received deduction (DRD) Moves the US closer to a territorial tax system rather than a worldwide system, which will generally allow companies to repatriate future foreign-source earnings without incurring additional US taxes by providing a 100% exemption for the foreign-source portion of dividends from certain foreign subsidiaries (deduction not available for capital gains or directly earned foreign income) The 100% DRD is available only to domestic C corporations for distributions made after 31 December 2017 A corporate US shareholder may not claim a foreign tax credit or deduction for foreign taxes paid or accrued with respect to any dividend allowed a 100% DRD Transition tax One-time transition tax on post-1986 earnings of 10% owned foreign subsidiaries accumulated in periods of 10% US corporate shareholder ownership; the transition rules include a participation exemption, the net effect of which is to achieve a 15.5% rate on cash and cash equivalents and an 8% rate on the remainder See example included herein for calculation of the one-time transition tax 11

12 International Global intangible low-taxed income (GILTI) Mandatory annual inclusion of GILTI determined on an aggregate basis for all controlled foreign corporations owned by the same US shareholder; allows for partial credits for foreign taxes properly attributable to the GILTI amount Domestic corporations allowed a deduction against foreign-derived intangible income (37.5% deduction initially, reduced to % for tax years beginning after 31 December 2025) Base erosion anti-abuse tax (BEAT) If certain thresholds are met, a new base-erosion-focused minimum tax may be levied for taxable years beginning after 31 December 2017 based on an applicable taxpayer s modified taxable income (MTI); the MTI is the taxpayer s regular taxable income determined without regard to certain deductible amounts paid or accrued to foreign related persons The targeted base erosion payments are expansive, including amounts paid for the acquisition of depreciable or amortizable property, but exclude payments treated as cost of goods sold The BEAT is generally equal to the excess of 10% (12.5% for years beginning after 31 December 2025) of MTI for the tax year over an amount equal to the taxpayer s regular income tax liability Applicable to corporations with average annual gross receipts of at least $500 million that have made related-party deductible payments totaling 3% or more of the corporation s total deductions for the year 12

13 State Conformity to Internal Revenue Code (IRC) The IRC and resulting federal taxable income (FTI) are typically the starting point to determine state taxable income States differ on federal conformity, and IRC conformity dates are key Rolling vs. fixed vs. selective conformity Interest expense limitations/immediate expensing 30% general business interest limitations may conflict with state add-back rules Many states already decouple from current federal tax law in regards to accelerated depreciation rules Transition tax/future distributions/anti-base erosion Multinational companies will have to quickly determine how states conform to the transition tax and evaluate resulting issues and opportunities States differ in the treatment of Subpart F income, and companies must also consider impact of state-specific expense disallowance rules for any non-taxed Subpart F income Future actual distributions that are excluded from FTI under federal previously taxed income (PTI) regime may be taxable in certain states, particularly California Anti-base erosion minimum tax on outbound payments is a new tax regime that would not be directly incorporated into the determination of FTI and state tax bases 13

14 Q&A 14

15 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved ED None ey.com 15