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US tax reform – an update

US tax reform – an update

The Bill has recently passed the Senate Budget Committee and will proceed to the full Senate for debate.

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The past week has seen progress in the ongoing US tax reform project, with the Tax Cuts and Jobs Bill passing the Senate Budget Committee hurdle on 28 November. The Bill will now proceed to the full Senate for debate, with voting expected to take place soon. The core constituents of the reform still include the overall reduction in the headline rate to 20 percent, the mandatory repatriation tax and imports excise tax. Any multinational business with significant activities in the US should be considering modelling the effects that US tax reform will have on their businesses. For those groups with a December year end, this should include consideration of the impact on deferred tax assets/liabilities (DTA/DTL) and the group effective tax rate (ETR).

Companies with global supply chains may be relieved that the proposed border adjustment tax (‘excise tax’ or ‘base erosion payments tax’) is – under current drafts - looking less onerous than first feared. The latest Senate Bill language and explanations are clearer that the cost of goods sold are not intended to be subject to the tax. Obviously, this could change as the Bill progresses in the Senate, but the initial impressions are encouraging.

We have identified eight action points for affected companies to consider:

  • Develop a high-level economic model of overall effect on group’s tax position/ETR;
  • Consider investment in US capital equipment to benefit from immediate expensing;
  • Consider restructuring related-party supply chain to minimise ‘imports’ excise tax/base erosion payments tax;
  • Evaluate benefits under Senate intellectual property (IP) incentives, including possibly inbounding foreign subsidiary IP to the US and modelling deduction for foreign intangibles income;
  • Evaluate US and global debt levels under interest expense and hybrid mismatch rules;
  • Compute Earnings and Profits (E&P) to the extent of mandatory repatriation tax exposure;
  • Evaluate the opportunity to defer income to 2018 and accelerate expenses/losses in 2017; and
  • Evaluate the DTA/DTL financial reporting impact of the legislation.

We are holding an update webinar on 5 December at 1pm, which will be hosted by our head of international tax, Melissa Geiger and our head of the US tax desk in London, Fred Gander. The webinar will briefly recap on the key measures affecting UK multinational companies, update on recent developments, give insight into the likely timetable for reaching agreement on the Bill, and give guidance on practical steps that affected groups should be taking. There will also be an opportunity to ask questions. To register, click here.

KPMG in the US have also prepared further commentary on the Bill’s progress, which can be found here.

For further information please contact:

Melissa Geiger

Fred Gander

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