U.S. Tax Reform: Joint Committee on Taxation Releases Summary of Senate Finance Committee’s Tax Reform Plan

Sullivan & Cromwell LLP - November 10, 2017
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Late yesterday, the Joint Committee on Taxation published the Senate’s proposal on tax reform (in the form of a description of the “Chairman’s Mark” of the “Tax Cuts and Jobs Act”). The Senate proposal shares some similarities but also contains notable differences to the House proposal, some of which are highlighted below (the initial House proposal is discussed in more detail in Sullivan & Cromwell LLP’s November 2, 2017 memorandum; certain recent amendments to the House proposal will be noted in this publication). The Senate Committee on Finance has scheduled a markup of the Chairman’s Mark on November 13, 2017. There is expected to be a series of amendments and debate within the Senate Committee on Finance early next week, with additional detail and legislative text expected as early as late next week. Because the proposal is not accompanied by legislative text, the details of these proposals are often unclear.

Key Differences Between House and Senate Proposals:

  • Corporate Tax Rate. Both proposals would reduce the corporate tax rate from 35% to 20%, but the change would apply to taxable years starting after 2017 in the House proposal and after 2018 in the Senate proposal.
  • Excise Tax on Payments to Foreign Affiliates. The Senate proposal excludes the 20% excise tax on certain deductible payments to foreign affiliates that is included in the current House proposal. Instead, the Senate proposal includes alternative measures aimed at preventing base erosion.
  • Deemed Repatriation Rates. Both proposals would require deemed repatriation of untaxed foreign earnings; however, the House proposal as amended last evening would tax such earnings at rates of 14% (on cash and cash equivalents) and 7% (on all other earnings), whereas the Senate proposal would tax such earnings at rates of 10% and 5%, respectively.
  • Nonqualified Deferred Compensation. The House proposal as amended last evening retains current law, whereas the Senate proposal would cause compensation deferred under a nonqualified deferred compensation plan to be included in income by the employee when the deferred compensation vests (rather than when the compensation is paid).