International tax reform heats up

Tax Hot Topics
Tax Hot TopicsTop congressional lawmakers have ramped up discussions over international tax reform as the outlook for business and comprehensive reform has dimmed.

The president has flatly rejected individual rate cuts, and efforts toward business-only reform have flagged as the pass-through community has rejected most proposals that would leave it out of a corporate-only rate cut. In response, tax writers and congressional leadership have begun discussing whether international changes could be made as a “down payment” on broader reform.

Lawmakers continue to discuss whether a mandatory transition tax on unrepatriated offshore earnings at a reduced rate could be paired with a transportation bill to cover a highway funding gap. Both a stand-alone repatriation provision and a voluntary repatriation holiday remain unlikely, so lawmakers would also need to agree on a permanent shift to a more territorial tax system.

The Senate Finance Committee working group on international tax reform is also working on the idea of an intellectual property (IP) “box” that would tax income from patents and other IP at reduced rates. Senate Finance Committee Chair Orrin Hatch, R-Utah, extended the original May deadline for the tax reform working groups to allow them to keep working.

Despite the growing momentum, international-only reform still appears unlikely this year. Stark differences remain between Republicans and Democrats over how to structure potential rules on a minimum tax, anti-inversion rules or other base-erosion provisions. It also unclear how effective an IP box and a territorial tax system would be without any reduction in the top corporate rate. Republicans may also be unlikely in the end to use the money from a mandatory repatriation proposal on spending for highways rather than on other tax changes as part of reform.

Mel Schwarz
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