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Update on tax reform legislation and debt/equity regulations
Taxand USA provides an update on tax reform legislation and debt/equity regulations.
The past few weeks have brought a couple of significant course corrections in the field of US tax law: one on the legislative front, dealing with possible tax reform, and a second, on the regulatory front, dealing with debt versus equity determinations.
Tax Reform: The BAT Strikes Out
Back in June of 2016, the House Republican Task Force on Tax Reform released its so-called Blueprint for tax reform, at the center of which was a destination-based cash flow tax (DBCFT) to replace the current federal income tax on corporations. At the heart of the DBCFT were so-called border adjustments, which would have taken the form of an exemption for export revenues and a disallowance of any deductions (or other forms of cost recovery, such as cost of goods sold or depreciation) for imported products and services. Because of the potential significance of its border adjustments, the DBCFT also became known as the border-adjusted tax, or BAT.
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At the moment, the possibility of major tax reform legislation passing in 2017 still seems to be a realistic possibility. Without the BAT, the changes may not be quite as dramatic, or permanent, as originally proposed. But it will be important to stay tuned to the process, as the changes (if they happen) will likely have a major impact on the tax provisions and deferred tax accounts of most companies doing business in the US.