Key takeaways

• Yesterday, the House Committee on Ways and Means released sweeping tax reform legislation in draft form that would significantly lower tax rates (including a 20% corporate income tax rate). This is the beginning of what is likely to be a complex legislative process with many changes to come.
• The Bill upends many fundamental and long-standing principles of the U.S. income tax system, for example by eliminating most itemized deductions, limiting the ability of C corporations to deduct interest and altering the taxation of non-U.S. earnings.
• The Bill replaces the current worldwide U.S. taxation system with a territorial system that taxes U.S. multinational corporations only on income related to the United States and imposes a one-time tax on all existing foreign earnings. However, the Bill proposes a new global tax on “excess” foreign profits that partly offsets the benefit of adopting a territorial system of taxation.
• The Bill proposes broad provisions aimed at avoiding the erosion of the U.S. tax base through deductible payments to related foreign parties and proposes radical changes to the taxation of deferred compensation. The Bill also proposes far-reaching changes to the taxation of insurance companies, particularly offshore reinsurance companies.