EY - Business tax reform and trends: survey views

Business tax reform and trends: survey views

Views on the prospects for federal tax reform

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In the Tax Council - EY Tax Reform Business Barometer1, we provide a current assessment of business tax professionals’ views on the expected likelihood of the different stages and key elements of federal tax reform.

In addition, the September 2015 Barometer also included questions on expiring business tax provisions, the funding of the Highway Trust Fund, the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting (OECD BEPS) project and the possibility of international-only tax reform. This Barometer tracked the views reported from 3 through 11 September 2015.2

Key results:

  • Respondents continue to believe that tax reform will occur within the next several years (63% likelihood that tax reform will happen in 2018 or earlier). However, this percentage has fallen slightly over the past year, with respondents giving a likelihood of 67% in June and 73% in January that tax reform will happen in 2018 or earlier.
  • The September Barometer indicates that 2017 remains the most likely year for tax reform with respondents assigning a 28% likelihood — consistent with responses of a 31% likelihood in June and a 33% likelihood in January.
  • Approximately 16% of respondents think tax reform will affect only corporations, 21% think it will include all businesses including pass-throughs, 19% think it will be international-only, and 45% think reform will be comprehensive. This is almost unchanged from the June 2015 Barometer, which reported that 16% of respondents thought tax reform would affect only corporations, 22% predicted that reform would involve all businesses including pass-throughs, and 40% thought reform would be comprehensive. No respondents expected tax reform to affect only individuals in the September, June or January Barometers.
  • With regard to the recent interest in an international-only reform, 35% think the enactment of such reform will increase the likelihood of enactment of a more comprehensive tax reform at a later date, while 65% believe it will hinder eventual enactment of comprehensive tax reform.
  • Most respondents (55%) expect tax reform will be revenue-neutral rather than raise revenue (33%), and 13% think it will reduce revenue. While this finding is consistent with the June 2015 and January 2015 Barometers, it represents a significant shift from earlier Barometers, in which 50% to 60% of respondents generally thought tax reform would raise revenue.
  • The median expectation of respondents that the House Ways and Means Committee chairman will release a specific tax reform plan by the end of 2015 was 25% (i.e., the median response across the range of expectations given by respondents). This is the same result given in the June 2015 Barometer, but down from the roughly 50% median expectation reported in the January 2015 and most earlier Barometers. Business tax professionals provided median expectations of 10% and 5% that the House Ways and Means Committee will mark up and pass tax reform legislation this year.
  • Respondents thought it less likely (5% median likelihood) that the Senate Finance Committee chairman will release a specific tax reform plan by the end of 2015. They also did not expect that the full Senate will pass tax reform legislation by the end of 2015 (0% median likelihood).
  • Barometer participants generally thought an innovation/patent box proposal should be funded with:
    1. More stringent anti-base-erosion provisions (61%)
    2. Scaling back existing R&D-related provisions (49%)
    3. A greater one-time tax on accumulated unrepatriated foreign earnings (42%)
    4. A higher minimum tax on foreign earnings (36%)
    5. Not paid for (i.e., deficit funded) (23%)
    About half of respondents (47%) indicated their organization is modeling the potential effect of an innovation/patent box proposal on their organization’s (or members’ or clients’) federal tax liability, while about one-third (31%) reported that their organization is modeling the potential impact on their industry.
  • Thirty percent of respondents think that the US will make significant changes stemming from the OECD BEPS project in 2017. No respondents believe these changes will occur in 2015, 20% believe changes will happen in 2016, 28% believe the US will implement BEPS changes in 2018, and 10% believe the US will not implement BEPS-related changes. When asked if the OECD BEPS project will result in significant changes in other countries during the same years, respondents pointed to 2016 and 2017 as the most likely years (30% median response for both years), compared to 2015 (10% median response), 2018 (25%), or not at all (5% median response).
  • Forty-seven percent of business tax professionals believe that tax revenues will be raised to help fund the Highway Trust Fund and related infrastructure spending. Respondents indicated that funding is most likely to be provided by miscellaneous measures (40%) or international tax reform with a transitional repatriation provision (35%).
  • At the end of last year, Congress enacted a one-year extension of the expiring business tax provisions through the end of 2014. Respondents were asked the likelihood that the major expiring tax provisions will be extended by the end of 2015; 91% of respondents believe Congress will extend the expiring provisions by the end of 2015. Most (67%) found it likely that the tax provisions will be extended for 2015 and 2016, while 29% believe the extension will cover 2015 only and 4% believe at least some of the expiring provisions will be permanently extended.

The trends here suggest that federal tax reform is not generally expected prior to 2017, the first year of the next president’s term. Respondents gave a 28% likelihood that tax reform will happen in 2017, a 6% likelihood of reform in 2016, a 26% likelihood in 2018 and a 16% likelihood in 2019.

Respondents were also asked about the likelihood that the OECD BEPS project will result in significant US changes to how multinational corporations’ global income is taxed in the next several years. They gave the highest average likelihood that significant change will occur in 2017 (37%), and they assigned the lowest average likelihood (7%) to 2015.

Furthermore, respondents were asked if the OECD BEPS recommendations at the end of 2015 will influence US tax policy through a commitment on the part of the United States to adopt new rules in certain areas. They were generally undecided on their views, although 70% think the US will adopt new rules related to a patent/intellectual property box and 64% think treatment of hybrids will be affected.

The barometer, a monthly survey completed by approximately 100 leading US tax executives and practitioners that tracks trends in the views of business tax professionals while tax reform is debated and developed in the US Congress, will gauge changes in the expectations for tax reform, including each of the milestones in the legislative process and the key elements of federal tax reform over the remainder of the 113th Congress.

Stay tuned.

1 The TTC/EY Tax Reform Business Barometer defines tax reform as legislation that substantially broadens the tax base or changes the tax rate for either corporate or individual taxpayers.

2 Ninety seven leading US tax executives and practitioners completed this month’s Barometer. Results are based on an online survey conducted by Ernst & Young LLP’s Quantitative Economics and Statistics (QUEST) practice.

Note that certain percentages presented in the Barometer may not total 100 due to rounding.