On 2 December 2017 the US Senate passed a tax reform bill. This follows on from the passing by the US House of Representatives of their version of the bill on 16 November. Passage by the Senate had been viewed as the most challenging step for tax reform and, following this, expert opinion is that the likelihood of tax reform happening has risen considerably. House and Senate bills must now be aligned through negotiation to arrive at a ‘conference report’ and passed in identical form by both bodies. The President then signs the bill into law. The Trump Administration aims for passage by Christmas 2017.
The Senate bill differs from the House bill on certain key cross-border rules (i.e. those of most interest to Chinese businesses, investors and tax policy makers). Choices now need to be made on which of the Senate or House variants will be carried to the final bill. We highlight here the key differences to analyze the impact from a China perspective. See our tax alert on the House tax bill here for more background detail.
The Senate tax bill differs from the House bill on a number of key points:
The two weeks to mid-December will see intensive negotiation on these points.
Both bill contains many innovations which break with historic US tax practices.
The base erosion and interest rules could impact some Chinese enterprise operations in the US, while other Chinese investors see increased after-tax returns from US investments. The CT rate reduction and IP incentive raise questions on the competitiveness of Chinese MNEs with their US counterparts. Chinese tax policymakers will also be watching developments closely, and may consider policy adjustments to maintain China business competitiveness. Close monitoring of the bill reconciliation is needed over the next two weeks.
Click here to read more details and observations prepared by KPMG US.