US proposed Tax reform

December 2017

"מלחמת המיסים"

The “Tax wars”

December/early 2018

► Congress sends President a

unified bill after the samebill

has been passed by both

chambers of Congress

► President signs bill into law

► Full House passed its

version of the Tax Cuts and

Jobs Act November 16

► Full Senate passed its

amended version of theTax

Cuts and Jobs Act

December 2

► Bill now goes to the House

for consideration. Options:

1. House passes bill without

additional changes

2. Formal / informal

conference

3. Amendment exchange (so

called ping pong) where

House/Senate trade bills

Two chambers reconcile differences and pass a final bill

House SenateOffice of the President

of the United States

November/DecemberNovember December/early 2018

Legislative process and timeline

3

Business tax highlights of tax reform bills

US House of Representatives

• 20% corporate rate, beginning 2018; AMT repealed

• 25% tax rate generally applied to passive business activity

income plus “capital percentage” (generally 30%) of active

income

• Limits interest deduction to 30% of earnings before

interest, tax, depreciation and amortization (EBITDA) with

additional limit based on global groupincome

• Immediate expensing – fiveyears

• Expands definition of covered employee(§162m)

• Establishes territorial exemption system for dividends

received by US corporations from 10%-owned foreign

corporations

• Transition tax on deferred foreign earnings: 14% /7%

• New broad-based anti-deferral provision taxes foreign high

return amount (FHRA) on a current basis at 10% effective

tax rate (some foreign tax credits (FTCs)available)

• 20% excise tax on certain deductible payments torelated

foreign persons with alternative effectively connected

income (ECI election)

US Senate

• 20% corporate rate, beginning 2019; AMT retained

• 23% deduction for domestic qualified business income

from a partnership, S corporation, or asole proprietorship

• Limits interest deduction to 30% of earnings before interest

and tax (EBIT) with additional limit based on global debt to

equity (phased in)

• 100% bonus depreciation – five years; additional fiveyear

phase out (20% reduction each year starting in2023)

• Expands definition of covered employee(§162m)

• Establishes territorial exemption system for dividends

received by US corporations from 10%-owned foreign

corporations

• Transition tax on deferred foreign earnings: 14.5% /7.5%

• New broad-based anti-deferral provision taxes global

intangible low-taxed income (GILTI) on a current basisat

10% effective tax rate (some FTCsavailable)

• New deduction for “foreign-derived intangibleincome”

• Anti-base erosion measures include minimum tax of 10%

or 11%, applied on income determined after adding back

deductible payments made to related foreignpersons

4

► Discrete event in enactment period;

recognized in continuing operations,

roll forward DTA to enactment date

► Non GAAP

► Impact on ETR

► Senate bill – gradual decrease

► Impact on current tax provision and

DTL

Reduction in tax rates 100% capital expensing ETR and cash tax

Tax Accounting considerations

5

► Update ETR and cash tax model

considering elimination of repealed or

restricted deductions and credits (199,

WOTC, 162(m), etc.)

► Impact on ETR and DTA, consider

VA

► impact on VA of repealed carryback,

unlimited statute of limitation

Interest limitation NOL Transition tax

► E&P study for current provision,

FTC/NOL utilization, BS classification

(8 years), impact on UTP

► Impact on “permanently reinvested”,

w/h tax accrual

► AMT and FTC credit carryforward

Territorial tax system VA considerations Other considerations

► Forecast impact of anti-deferral

provisions (GILTI and FHRA) on ETR

► Impact of excise tax/ BEAT on ETR,

hybrid tax consideration

► State taxes

Press Release 10-KQ1 press release

Bill becomes law December 23, 2017

Timeline

FY17Tax Return

Critical

Start now

s

Management

Plan the work

Identify implementation requirements in and out of tax

Identify Stakeholders

Reach agreement with management

Reach agreement to approach with the audit firm

Educate Stakeholders (internal and external)

Technical work

Identify the deferred that will turn in FY17 v. FY18 and beyond

Identify a method to revalue the balance sheet that will turn in FY18 and beyond

Develop a method to quantify the 9.27 expensing provisions?

How might new law impact the state provisions and how should one approach at year end?

Calculate the transition tax.

Develop an approach to the outside basis differences and withholding taxes etc.

Inventory and analyzeattributes — will the realizabilty of any of these changes (consider valuation allowances)

Evaluate the overall VA position under new rules

Evaluate the FIN 48 positions for any changes that might result from new law

Disclosures andCommunication

Start to mark up the 10-K and think about disclosures.

Other communications-

How to prepare management for Q&A to various stakeholders

Executive Compensation matters

404 considerations

Evaluate the companies the internal control environment for this type of change?

How will the internal controls be documented to show they are operating?

FY 18 Model under new law

Calculate the minimum tax

Calculate the GILTI amounts

Calculate the interest expense limitation

Calculate the impact of full expensing.

Analyze the impact of AMT

Calculate any other new provisions (M&E, Section 199, etc.)

Calculate the executive compensation provisions

Develop a plan for state calculations with potential change in mid- year.

Develop a plan to monitor outside basis on cfcs

Analyze the possible creation of new attributes and realizability

Considerations