TRENDS IN BUSINESS DEVELOPMENT COMPANIES 2017 Business Tax Reform David J Kautter May 15, 2017
Areas of focus Rates Depreciation Interest expense International Everything else 2
Rates corporate President Trump House Republicans 15 percent 20 percent Rate 3
Rates pass-through entities President Trump 15 percent House Republicans Reasonable compensation + 25 percent on the remainder 95 percent of businesses are pass-through entities Pass-through entities earn more that 50 percent of all business income 4
Depreciation President Trump No proposal Manufacturers: choice between: (1) current law or (2) immediate expensing for tangible and intangible property (not land) with no deduction for interest expense Non-manufacturers: no proposal House Republicans Immediate expensing tangible and intangible not land 5
Interest deductions Donald Trump No proposal No deduction if immediate expensing is elected House Republicans Limited to interest income 6
Other business deductions President Trump Eliminate tax breaks for special interests (unspecified) House Republicans Repeal certain business deductions (unspecified other than domestic production activities deduction (DPAD)) 7
Corporate AMT Donald Trump No proposal Eliminates House Republicans Eliminates 8
Carried interest President Trump No proposal Eliminate House Republicans No proposal 9
Individual tax reform Capital gains President Trump Eliminate 3.8 percent tax on net investment income (NII) 20% top rate on capital gains House Republicans Eliminate 3.8 percent tax on NII 50 percent exclusion of gain from tax Rates: 6 percent, 12.5 percent and 16.5 percent (top rate) 10
Individual tax reform Dividends and interest President Trump No proposal House Republicans 50 percent exclusion from income Rates: 6 percent, 12.5 percent and 16.5 percent 11
INTERNATIONAL TAX REFORM ISSUES
International tax Worldwide taxation (current U.S. system) Tax all worldwide income of domestically headquartered companies when the money is repatriated to the United States (deferral) Allow credits for taxes paid in foreign countries when the earnings are repatriated to the United States Territorial system Tax only the income earned within a country s borders. Income earned abroad is not taxed. Exempts dividends received from foreign subsidiaries 13
International tax overall system President Trump Territorial system House Republicans Territorial system Border adjustment for exports and imports, i.e., impose tax on imports and rebate tax on exports 14
International tax current accumulated foreign earnings Donald Trump One time tax 10 percent tax House Republicans 8.75 percent tax on cash 3.5 percent tax on remainder Paid over eight years 15
Border adjustability General Agreement on Tariffs and Trade (GATT) Sold in Germany Manufacturing Cost $80 Value Added Tax $10 Corporate Income Tax 0 Total Cost $90 Sales Price $100 Profit $10 Sold in USA Manufacturing Cost $80 Value Added Tax 0 Corporate Income Tax $10 Total Cost $90 Sales Price $100 Profit $10 Chair selling price $100 Made in Germany B O R D E R Made in USA B O R D E R Sold in USA Manufacturing Cost $80 Value Added Tax 0 Corporate Income Tax 0 Total Cost $80 Sales Price $100 Profit $20 Sold in Germany Manufacturing Cost $80 Value Added Tax $10 Corporate Income Tax $10 Total Cost $100 Sales Price $100 Profit 0 16
TIMING EFFECTIVE DATES TRANSITION RULES
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