The Senate Finance Committee on Dec. 11 released updated text for the tax title to the reconciliation bill. The updated tax title includes a number of changes to the international tax items in the House-passed version of the bill, however, Sen. Joe Manchin, D-W.V., recently indicated he will not support the reconciliation bill—and his vote is a necessity for Senate passage of the package.
Nevertheless, the below list includes some of the more meaningful changes to the international provisions in the Senate Finance Committee’s bill. This is not an exhaustive list, and this new Senate bill is not the final version of the reconciliation text.
- Dividends from certain non-CFC SFCs: The Senate title would retain the dividends received deduction under Section 245A for dividends received from specified 10% owned foreign corporations (SFCs). The House bill would have limited it solely to controlled foreign corporations (CFCs), but would reduce the deduction from 100% to 65% for dividends received from an SFC which is not a CFC (i.e., “10-50 companies”).
- Dividends received by CFCs from SFCs: The Senate bill would provide that for a domestic corporation is a U.S. shareholder of both a CFC and a lower-tier SFC held by a CFC, dividends received by the CFC from the SFC would qualify for the Section 245A deduction if the U.S. shareholder has an inclusion under Section 951(a)(1)(A).
- Modify the term “base erosion tax benefits”: The Senate bill expands the term “base erosion tax benefits” to include the reduction in gross receipt for cost of goods sold (COGS) which is included in inventory costs under the Section 59A(d)(5) base erosion payment rules. As a result, the treatment of COGS would be considered when determining the 3% base erosion percentage for the applicable years.
- Expand the definition of “surrogate foreign corporation”: The post-acquisition ownership threshold for surrogate foreign corporations would be reduced from “at least 60%” to “more than 50%.”
- Expand the definition of “inverted corporation”: The post-acquisition ownership threshold for determining inverted company status would be reduced from “at least 80%” to “at least 65%.”
- Inclusion of foreign partnerships: For acquisitions after the enactment, the targeted acquisition would be expanded to include the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a foreign partnership that constitute a U.S. trade or business (in addition to substantially all the assets of a domestic partnership or corporation as under the current law).
- Provide a new election: Section 163(n) would include a new election to calculate the interest limit based on the adjusted basis of assets instead of earnings before interest income and interest expense, taxes, depreciation, depletion, and amortization.
Corporate Minimum Tax:
- Adjustments for pensions and deferred compensation: The bill would disregard any book income, cost, or expense with respect to defined benefit pension plans. It would then include any item of income or deduction included in the computation of taxable income with respect to defined benefit pension plans.
For more information on the Senate Finance Committee’s updates, see our previous story, “Senate releases new reconciliation tax title.”
David E. Sites
David leads the firm's International Tax practice, which focuses on global tax planning, cross border merger and acquisition structuring, and working with global organizations in a variety of other international tax areas.
Washington DC, Washington DC
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- International tax
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