The Senate Finance Committee today held a hearing to examine corporate integration, with a specific focus on the possibility of allowing corporations to deduct dividends paid. Among the issues discussed were the possible imposition of withholding taxes on dividends and interest paid, and the effect on pension plans and tax-exempt entities.
The Joint Committee on Taxation (JCT) prepared a report providing an overview to corporate integration approaches in conjunction with the hearing.
In his opening statement, Finance Chairman Orrin Hatch (R-UT) highlighted problems and distortions that arise under the current system of taxation for C corporations and explained the benefits of achieving an integrated system by allowing a dividends paid deduction. Chairman Hatch, in part, said:
To hopefully take advantage of these and other benefits, I’ve been working for over a year now on a tax reform proposal that would eliminate double taxation of corporate income by providing this type of deduction. While I plan to unveil that proposal here in the next several weeks, I’m hoping we can inform this ongoing effort by having a more detailed discussion of these concepts and others during the course of today’s hearing.
Before I conclude, I want to acknowledge that some groups – including tax-exempt entities and retirement plans – may have some concerns with a dividends paid deduction. However, at the end of the day, I believe we can craft a system where these parties will be treated in manner that is comparable to current law, in fact, in many cases will be better off. And, at the same time, our overall tax system will, in the opinion of many, be very much improved.
Still, I want everyone to know that, as I am preparing my integration proposal, I am aware of the concerns that these and other groups might raise and I am studying them very closely. Today, and going forward, we seek your comments and suggestions.
In his opening statement, ranking member Ron Wyden (D-OR) raised questions about how corporate integration might affect retirement savings and how it might affect different kinds of businesses.
Witnesses at the hearing were:
The witnesses’ written statements are posted on the Finance Committee’s website.
The Senate Finance Committee today announced that the next hearing concerning corporate integration, with the hearing to address the topic of debt versus equity, is scheduled for Tuesday, May 24, 2016.
The Joint Committee on Taxation released, in advance of the May 24 hearing, a report that presents an overview of federal income tax rules relating to debt and equity; some of the statutory limitations on the tax benefits of each; and the tax incentives created by present-law tax treatment of debt and equity. Read JCX-45-16.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.