Congress Set to Pass Tax Reform: What you Need to Know

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Late last night the US Senate passed Tax Reform with a 51-48 vote. The House will have to vote again (the House previously voted 227-203 in support) after the Senate parliamentarian rejected three provisions in the Senate bill. Both chambers must pass identical bills. The House is expected to vote again today and President Trump is expected to sign the bill into law soon after the final votes.

This is what you need to know…

Here is a rundown of some of the key components for our community.

The Orphan Drug Tax Credit
The package unveiled Friday will let drug companies deduct 25 percent of the costs of the clinical trials they conduct for research into rare disease treatments. That’s less than the 50 percent that they can deduct right now, but the first draft of the legislation released by the House Republicans completely eliminated the credit. The final package also drops a requirement included in some earlier drafts that the administration disclose which companies took the credit, for how much, and for which drug.

Rates for Offshore Earnings
The final version of the legislation sets the new repatriation rate at 15.5 percent for income held as cash and 8 percent for other assets. Those rates are slightly higher than the Senate bill, which set them at 14.5 and 7.5 percent, respectively.

Corporate Tax Rate
The final version of the bill would lower the corporate tax rate to a flat 21 percent.

Other Provisions

  • No excise tax on payments to foreign affiliates
  • Base erosion minimum tax does not apply to payments for product (unless the payment relates to a group that inverts post Nov 2017)
  • Interest limitation restricted to 30% of EBITDA for 4 years and thereafter 30% of EBIT.
  • Unlimited carryforward of disallowed interest
  • No global leverage test
  • Repeal of Corporate AMT
  • NOL deduction restricted to 80% of taxable income from 1 Jan 2018
  • The restriction on individual shareholders of inverted corporations not eligible for reduced rate on dividends only applies in respect of groups that invert post enactment
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