2014 Cha irma n Ca mp s T a x Pro po sa l T ax Update Curre nt - PDF document

6/9/2014 Age nda • T he “T a ng ib le Pro pe rty Re g ula tio ns” • U.S. T a x Ra te s & I nve rsio n T ra nsa c tio ns 2014 • Cha irma n Ca mp’ s T a x Pro po sa l T ax Update • Curre nt Sta tus o f T a x E xte nde rs Ro b e rt W. He nry • Que stio ns 2 T angible Pr ope r ty R e gulations • Ma te ria ls & Supplie s T HE “T ANGIBL E PR OPE R T Y • De minimis c a pita liza tio n thre sho ld R E GUL AT IONS” • Ro ta b le spa re pa rts • Pa rtia l dispo sitio ns • Building “syste ms” • E ffe c tive in full a s o f 1/ 1/ 2014 • Ac c o unting me tho d c ha ng e ma y b e re q uire d to c o nfo rm. 4 1

6/9/2014 T angible Pr ope r ty R e gulations • Re v. Pro c s. 2014-16 a nd 2014-17 – Pro vide a uto ma tic a c c o unting me tho d U.S. T AX R AT E S & INVE R SION c ha ng e s fo r ma ny o f the ite ms a ddre sse d in the ne w Re g s. T R ANSACT IONS – All ta xpa ye rs will ne e d to c o nside r the po te ntia l fo r a n a c c o unting me tho d c ha ng e unde r the se Re g s. – Wa tc h fo r misste ps b y a do ptio n o f a n a c c o unting me tho d b y me re ly tre a ting a n ite m a c e rta in wa y o n yo ur 2014 ta x re turn. 5 U.S. T ax R ate s & Inve r sion U.S. T ax R ate s & Inve r sion T r ansac tions T r ansac tions • U.S. Inte rna tio na l T a x Sc he me in Ge ne ra l – “Wo rldwide T a xa tio n” – If He a dq ua rte re d (HQ) in the U.S., ta xe d o n wo rldwide inc o me . • Co mpa nie s c re a te o ffsho re sub sidia rie s to ho use pro fits a nd de fe r U.S. ta xa tio n. • T a xa tio n trig g e re d upo n re pa tria tio n o f the e a rning s. – Prio r “re pa tria tio n ho lida ys” ma y no t ha ve a c hie ve d muc h in the wa y o f jo b s c re a tio n o r dire c t U.S. inve stme nt, b ut prima rily ha ve b e e n use d to fund de b t pa y-do wn o r re turns to sha re ho lde rs. 7 8 2

6/9/2014 U.S. T ax R ate s & Inve r sion U.S. T ax R ate s & Inve r sion T r ansac tions T r ansac tions • Ma jo rity o f the OE CD utilize s a “te rrito ria l ta x” sc he me . – All inc o me e a rne d within the b o rde rs o f the ta xing jurisdic tio n is dire c tly a nd c urre ntly ta xe d, re g a rdle ss o f the do mic ile o f the ta xpa ye r. – Inc o me e a rne d in o the r jurisdic tio ns o utside the b o unda rie s o f the ta xpa ye r’ s do mic ile is no t ta xe d upo n re pa tria tio n. So urc e : Se na te Re pub lic a n Po lic y Co mmitte e 9 10 U.S. T ax R ate s & Inve r sion U.S. T ax R ate s & Inve r sion T r ansac tions T r ansac tions • Pfize r / Astra Ze ne c a • F a vo rite Quo te – Pfize r b id to me rg e with Astra Ze ne c a in o rde r – “T he Na tio n sho uld ha ve a ta x syste m tha t to , a mo ng ma ny o the r stra te g ic o b je c tive s, lo o ks like so me o ne de sig ne d it o n purpo se .” do mic ile HQ in the UK . – Willia m Simo n, F o rme r U.S. T re a sury Se c re ta ry – Pfize r pulle d $118B b id (30% pre mium to pre - a nno unc e me nt sto c k pric e ) a nd pla ns no – With the c urre nt wo rldwide ta xa tio n sc he me ho stile ta ke o ve r b id. full o f de fe rra l a nd e xpa tria tio n mo tiva to rs, a te rrito ria l syste m se e ms to b e tte r fit the b ill o f a “syste m tha t lo o ks like so me o ne de sig ne d it – Inc o me ta x sa ving s we re a sig nific a nt o n purpo se .” c o nside ra tio n in the stra te g ic pla n fo r this ta ke o ve r b id. 11 12 3

6/9/2014 U.S. T ax R ate s & Inve r sion U.S. T ax R ate s & Inve r sion T r ansac tions T r ansac tions • Va le a nt Pha rma c e utic a ls I nc . / Alle rg a n I nc . – Va le a nt la unc he d a ho stile b id fo r Alle rg a n inte nding to e xpa tria te Alle rg a n’ s HQ fro m the U.S. to Ca na da , Va le a nt’ s c o untry o f do mic ile . • “…it’ s like ly tha t the hug e g a p b e twe e n US a nd fo re ig n ta x ra te s will re sult in – T he fa vo ra b le ta x c o nse q ue nc e s o f the de a l we re Ame ric a lo sing a n hug e c o rpo ra te c itize n a ma jo r po int a rg ue d in the ho stile b id. b e fo re po litic o s g e t se rio us a b o ut so lving – Va le a nt c la ims the de a l wo uld re sult in a “[h]ig h the pro b le m.” – K e vin Chupka writing fo r sing le -dig it ta x ra te fo r c o mb ine d c o mpa ny in fina nc e .ya ho o .c o m. a dditio n to c o st syne rg ie s.” – Alle rg a n re spo nds tha t “Va le a nt’ s multiple o ffsho re ta x de fe rra l struc ture s a re a g g re ssive , diffic ult to susta in a nd c o mpo und risk in multiple jurisdic tio ns.” 13 14 Chair man Camp’s T ax Pr oposal • T he “T a x Re fo rm Ac t o f 2014” CHAIR MAN CAMP’S T AX • Whe w! Wha t a Bill this is PR OPOSAL – 979 pa g e s o f ta x re fo rm – 190 pa g e s o f “summa ry” o f the Bill – Addre sse s virtua lly e ve ry a spe c t o f c urre nt U.S. ta x la w • Yo u will no t re c o g nize the ne w ta x c o d e if this Bill b e c o me s la w. 16 4

6/9/2014 Chair man Camp’s T ax Pr oposal Chair man Camp’s T ax Pr oposal • Ca mp’ s a rg ume nts fo r his pla n • I ndividua l I nc o me T a x Cha ng e s – JCT e stima te s the to ta l pa c ka g e wo uld no t a dd – T o o ma ny to c o ve r in this pre se nta tio n, so we to the b udg e t de fic it. will hit the hig h po ints. – So me sa c re d c o ws survive – Cre a tio n o f 1.8 millio n ne w priva te se c to r jo b s. – Individua l ra te s a re “simplifie d” – Allo ws ro ug hly 95% o f ta xpa ye rs to g e t the lo we st – Ma ny c re dits re pe a le d po ssib le ta x ra te b y simply c la iming the sta nda rd de duc tio n. – IRAs, SE Ps a nd Simplifie d 401(k)s fa c e multiple c ha ng e s – Stre ng the ns the e c o no my a nd inc re a se s GDP b y $3.4 trillio n (20% o f to da y’ s GDP) 17 18 Chair man Camp’s T ax Pr oposal Chair man Camp’s T ax Pr oposal • I ndividua l T a x Ra te s • Sa c re d Co ws – T he Go o d – Curre nt struc ture – Mo rtg a g e Inte re st de duc tib le o n • Se ve n inc o me b ra c ke ts ra ng ing fro m 10% to inde b te dne ss up to $500,000 39.6% – Child ta x c re dit inc re a se d a nd e xpa nde d • Ne t inve stme nt inc o me ta x o f 3.8% fo r inc o me o ve r $250,000. – Sta nda rd de duc tio n inc re a se d to $22,000 • Divide nds a nd c a pita l g a ins a t 0%, 15%, o r 20% (MF J) / $11,000 (sing le ) with pha se -o ut de pe nding o n re g ula r inc o me ta x b ra c ke t. pro visio ns still in pla c e . • Ra te s o f 25% a nd 28% o n unre c a pture d Se c tio n – Cha rita b le c o ntrib utio ns ma de until due da te 1250 g a ins o f re turn a re de duc tib le (sub je c t to 2% flo o r) • Ite mize d de duc tio n a nd pe rso na l e xe mptio n pha se o ut le ve ls diffe r fro m inc o me ta x b ra c ke t 19 le ve ls. 20 5

6/9/2014 Chair man Camp’s T ax Pr oposal Chair man Camp’s T ax Pr oposal • I ndividua l T a x Ra te s • Cha ng e s to the E I T C – Ca mp Pro po sa l – Pro po sa l wo uld ma ke c re dita b le o nly • T hre e ta x b ra c ke ts o f 10%, 25% a nd 35% e mplo yme nt re la te d ta xe s pa id b y o r o n – Inc o me thre sho ld fo r the 35% b ra c ke t wo uld mirro r b e ha lf o f the ta xpa ye r. tha t o f the c urre nt 39.6% b ra c ke t. – Inc o me b ra c ke ts ind e xe d to “c ha ine d CPI” inste a d o f CPI – Va rio us thre sho lds in pla c e to c la im this • Spe c ia l ra te struc ture fo r divide nds a nd c a pita l re funda b le c re dit. g a ins re pla c e d with a n a b o ve the line de duc tio n e q ua l to 40% o f ne t c a pita l g a ins a nd q ua lifie d divide nds. – JCT e stima te s a 10-ye a r ne t re duc tio n to • Qua lifie d do me stic ma nufa c turing inc o me sub je c t o utla ys (spe nding ) o f $218 b illio n. to a to p ra te o f 25%. • Pha se o uts still in pla y. • JCT e stima te s a 10-ye a r c o st o f $498.7 b illio n 21 22 Chair man Camp’s T ax Pr oposal Chair man Camp’s T ax Pr oposal • Re pe a l o f the “pe rso na l e xe mptio n” • E duc a tio n T a x Be ne fits – Curre ntly the re a re o ve r 15 diffe re nt – Be ne fits fo r ta xpa ye r a nd spo use “c o nso lida te d” into the la rg e r sta nda rd e duc a tio n-re la te d ta x b e ne fits. de duc tio n – T he c urre nt fo ur hig he r e duc a tio n ta x c re dits wo uld b e c o nso lida te d into o ne “Ame ric a n – Be ne fits fo r ta xpa ye r de pe nde nts Oppo rtunity T a x Cre dit”. c o nso lida te d into e xpa nde d c hild a nd – Ho pe Sc ho la rship Cre dit, L ife time L e a rning de pe nde nt ta x c re dit. Cre dit a nd tuitio n de duc tio n wo uld b e re pe a le d. – JCT e stima te s ne t inc re a se in re ve nue o f – Cha ng e in o rde ring rule s fo r Pe ll Gra nts $731 b illio n – JCT e stima te s a ne t c o st o f $9 b illio n 23 24 6