Will international tax reform still be linked to highway bill?

What next for U.S. international tax reform?

Press reports today include a statement from an aide to Ways and Means Chairman Paul Ryan (R-WI) that Ryan may be considering abandoning the idea of using international tax reform to provide funding for infrastructure projects in a long-term highway bill.

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Highway bill as vehicle for international tax reform

Recall that over the summer, there was considerable talk on Capitol Hill of combining highway funding legislation with a sweeping overhaul of the tax rules affecting multinational businesses. The general concept—which had some bipartisan support—is that revenue raised by a deemed repatriation of untaxed foreign earnings of U.S. companies could be used to fund highway spending, while at the same time modernizing the international tax rules and enhancing incentives for innovation. This limited legislative success could then serve as a step towards more expansive tax reform in the future.

The talk about enacting such “limited scope tax reform” escalated in July 2015, and had been expected to continue when Congress tries (again) to find a multi-year solution to highway funding concerns. The potential link between highway funding and international tax modernization was apparent in negotiations between the House and the Senate on the short-term highway bill that was enacted in July 2015.

  • Senate leadership generally supported a six-year highway bill, the costs of which were offset for three years; the offsets included both tax and non-tax provisions, and some were perceived as controversial.
  • The House, however, sought only a short-term extension, which Ways and Means Chairman Ryan reportedly suggested would “buy time” for Congress and the president to try to reach agreement on international tax reform that would include deemed repatriation to fund infrastructure. 

What now?

With today’s reports in Politico, it appears that Ryan may be reconsidering this plan. Yet, assuming that the reports are confirmed, it is not clear what this means for international tax reform in this session of Congress.  

Could international tax reform now be considered separately by the Ways and Means Committee? Or at a minimum, would Ways and Means release an international tax reform discussion draft?

Some have expressed beliefs that enacting even limited scope tax reform in the near future would be difficult and the chances of such reform becoming law this year, while not zero, would appear to be small. The potential implications of the possible tax law changes would be substantial, and some of the changes could affect businesses with solely domestic operations as well as those with multinational operations. 

Proposals for international tax reform—and any related incentives such as the innovation box or “patent box” regime, even if unsuccessful, could be building blocks for future legislative efforts. 

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