On 27 September, the Trump Administration, jointly with House and Senate leadership, released the highly anticipated Tax Reform Framework. The document reflects the core elements of tax reform for which there is broad agreement. These core elements will provide the foundations upon which House and Senate tax writers will work to draft legislation.
As was largely anticipated, the framework includes the following provisions:
- A reduction in the federal corporate tax rate from 35% to 20%, as well as a 25% rate on certain pass-through entities
- Temporary immediate expensing of the cost of new investments in depreciable assets (other than structures) for at least five years
- A partial restriction on net interest expense for corporate taxpayers
- The elimination of the domestic manufacturing deduction, (as well as many yet to be identified deductions) though the R&D credit will be preserved
- A new territorial international tax system that includes a 100% exemption for dividends from foreign subsidiaries (the framework does not discuss whether a participation exemption for capital gains would be included)
- A one-time transition tax on previously untaxed, accumulated foreign earnings, with lower rates for those earnings now tied up in illiquid assets
- The repeal of death taxes (inheritance tax)
- The repeal of Alternative Minimum Tax (AMT)
- The introduction of a three bracket system for taxable income for individuals (down from seven), and the introduction of an extended zero tax bracket
In the coming months we will be keeping a close eye on these US tax reforms as they progress and will be in touch with the PKF US firms to ensure our clients are kept up to date.