Layla Asali and Rocco Femia were quoted regarding House Ways and Means Committee Chairman Dave Camp's recently released comprehensive tax reform draft plan. The international tax provisions of the new plan follows Camp's previously proposed measures to fight base erosion, including the modification of intangible income taxation, similar to the previously proposed option C, Asali said. She said one criticism of the previous option C proposal was the difficulty in identifying foreign intangible income, which the new draft addresses through a formula approach. "Are you just backed into endless transfer pricing disputes in identifying intangible property and determining how much income is attributable to that property? What [Camp] does here instead is adopt a formula," she said, adding that there were pros and cons to both approaches that would require a hard look from practitioners. Femia noted that the draft plan provides a more comprehensive context for the base erosion provisions, adding that the new draft offers a "more complete picture" of how the base erosion proposal fits in with the rest of the subpart F scheme.

The new proposal provides for two different tax rates for a one-time tax on earnings and profits (E&P) held overseas in order to reduce the tax burden on some taxpayers. The split rate is a "very interesting change to the proposal" and a good example of the legislative staff's responsiveness in addressing comments on the 2011 proposal, though "everyone may not be content where they landed," Femia said. "Something as big as this [new] proposal has winners and losers," Asali said, noting that the new plan allows taxpayers to take into account E&P deficits in foreign subsidiaries to reduce the one-time transition tax, showing that the drafters sought to make changes that were as fair as possible.

Additionally, the proposal includes provisions that would address the taxation of foreign persons, including a limitation on treaty benefits with respect to U.S. withholding tax imposed on related-party payments. "This raises questions in terms of our treaty policy," Asali said. "When we negotiate treaties with other countries, as long as you meet the extensive limitation on benefits test, there isn't this additional question of who is your foreign parent. [Under the proposal] if you are owned by some entity that isn't treaty eligible with the U.S., you're out. Once we get through our limitations on benefits rule, that ought to be enough."