Blog Posts Tagged With Territoriality

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Senate Finance Explores International Tax Reform

In the first hearing on tax reform since the “Big Six” released their framework last week, the Senate Finance Committee focused on international tax reform. The academics invited to testify criticized the framework proposal, which combines elements of a territorial system and a minimum tax, and took the opportunity to advocate their own proposals for international tax reform. While Chairman Hatch (R-UT) expressed support for a move to a territorial regime, Ranking Member Wyden (D-OR) characterized the framework as a “corporate wish list.”

Professor Itai Grinberg voiced a full-throated defense of a territorial system, arguing that the current U.S. Continue Reading

The Big Six Framework “Arrives”

The Big Six tax reform framework has arrived, sort of. The Big Six officially released “The Unified Framework for Fixing our Broken Tax Code” this morning, in a format (and in many ways content) that resembles the House Republican blueprint from 2016. Although more detailed than the proposal put forward by the Trump administration in April, the Framework leaves a number of key decisions up to the House and Senate tax writing committees. Without further ado, here is a summary of what the Framework contains:

A few initial observations:

Not a Lot of Detail.  While the framework sets forth a rough outline of a tax reform bill, the level of detail contained in the framework and the number of instances where the framework specifically leaves discretion to the tax writing committees indicates that the plan is very fluid at this stage. Continue Reading

Foreign Minimum Tax: A Primer

Although light on details, the recent statement on tax reform from the “Big 6” group of Republican Congressional and White House policymakers provided two important hints on the direction that tax reform may be heading. First, the Big 6 remain dedicated to imposing a “system that encourages American companies to bring back jobs and profits trapped overseas.” Whether this means true international tax reform or merely lower tax rates at home is up for debate. However, if international tax reform remains a goal, the joint statement made clear that it will not be accomplished by way of a destination-based cash flow tax (a “DBCFT”). Continue Reading

(Re)Setting the Stage for Comprehensive Tax Reform: Big Six Send First Signals

The Legislative Calendar: Six Months In.  With yesterday’s late night last ditch failed effort by the Senate to pass a so-called “skinny” repeal of the Affordable Care Act, the Republican controlled chamber has nearly run the clock on its strategy for passing major legislation by majority vote, which relied on reconciliation instructions under the FY 2017 budget resolution (a process we highlighted back in December). Congress will soon need to adopt budget resolutions for the 2018 fiscal year if regular order is to be readopted and any progress is to be made on the President’s budget proposals (which are traditionally only a starting point for negotiations). Continue Reading

Prospects for Tax Reform in 2017?

House Speaker Paul Ryan (R-WI) addressed the National Association of Manufacturers on Tuesday in an effort to build support for tax reform, emphasizing the unique, and diminishing, window of opportunity that exists to enact permanent tax reform ahead of next year’s primaries and midterm elections. According to his press office, this speech marks the beginning of his “sales pitch” for tax reform in 2017. Speaker Ryan’s prepared remarks are available here. You can also watch his speech here (starting at 1:41:34).

Here are the key takeaways:

  • Republicans Are Aiming for End of 2017:  Speaker Ryan said that lawmakers would “begin to turn” their plan into legislation to put in front of Congress, and promised to “get this done in 2017.” We have heard this line before, both from Speaker Ryan and from Treasury Secretary Steve Mnuchin during the press conference unveiling Trump’s tax principles.
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Back to Basics: Camp Plan Revisited

As the Trump administration and House and Senate leaders huddle to find a path to permanent tax reform, the detailed draft legislation released in 2014 by former Rep. Dave Camp will be among the ideas considered.

Relative to the Blueprint, the Camp proposal takes a traditional approach to tax reform, with a focus on broadening the tax base to achieve lower tax rates.  We will consider various elements of the Camp plan and begin today with a recap of certain of its international components.

Territoriality.  In a significant move toward a territorial system, U.S. corporations that receive dividends from 10%-owned non-U.S. Continue Reading

President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?
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A Future for FATCA?

Certain aspects of the Foreign Account Tax Compliance Act (“FATCA”), the revenue-raising portion of the 2010 stimulus bill known as the HIRE Act, have been a continuing source of controversy since its inception. A spate of recent criticism and introduced legislation raises the question whether FATCA will survive if any tax reform proposals are enacted. For example, on April 5, Senator Rand Paul (R-KY) and Representative Mark Meadows (R-NC 11th) sent an open letter to the Treasury Secretary and the Director of OMB outlining administrative steps that the Trump administration could take to halt, or at least severely slow, the enforcement of the law. Continue Reading

Sanders/Schatz Tax Reform Bill: A Recent Data Point from the Democrats

While House Republicans could use the budget reconciliation process to pass tax reform without the need for Democratic support, leaders in the Senate have indicated a desire for bipartisan reform. White House press secretary Sean Spicer’s statement earlier this week on the tax reform process also suggests that input from the Democrats may be relevant.

With that in mind, we thought it would be useful to highlight a bill introduced in the Senate by Senators Bernie Sanders (I-VT) and Brian Schatz (D-HI) – the “Corporate Tax Dodging Prevention Act of 2017.” A companion bill was introduced in the House of Representatives by Representative Jan Schakowsky (D-IL). Continue Reading

Who’s Afraid of the WTO?

One concern voiced about the destination-based cash flow tax (DBCFT) is that the border-adjustment feature may not be compatible with World Trade Organization (WTO) rules. Although much of the current discourse on the topic is muddled, the border adjustment feature of the DBCFT proposal is not intended to be trade policy (and, as we have discussed before, many economists believe that it should have no impact on trade). Instead, it is intended to be tax policy – i.e., a means to achieve territoriality within a cash flow tax-based system, taxing only cash flows associated with consumption in the United States.

It is on this basis that House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady (R-TX) have repeatedly defended the proposition that the DBCFT is a consumption tax that meets WTO standards. Continue Reading

What does “Territoriality” really mean?

“Territoriality” is one of the key buzz words in this year’s tax reform lingo, with many proposals urging a shift away from our current “worldwide” system of income taxation for business income. This post expands on what features a “territorial” system might include.

The Basics.  A worldwide system of income taxation taxes residents of the taxing jurisdiction on all of their income, both foreign and domestic (usually with a credit for foreign taxes paid). A territorial system, on the other hand, theoretically taxes only income earned in the taxing jurisdiction. In practice, however, the lines between a territorial and worldwide system are rarely, if ever, this clear. Continue Reading

Setting the Stage for Comprehensive Tax Reform

Tax reform will be one of the top priorities for the 115th Congress. Hopes for pursuing tax reform to a successful conclusion are high, given one-party control of the government (and exuberant campaign promises). Following the 2016 election, Davis Polk laid out the background and context in which tax reform measures will be considered, with links to summaries of the leading proposals and details on the politics of tax reform. Although life in Washington has moved forward since this memo was published, the key points and players remain the same. Read on for things to watch.

Setting the Stage for Comprehensive Tax Reform, December 2, 2016

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