Tax Fairness and Transparency Act

To amend the Internal Revenue Code of 1986 to limit the interest deduction for excessive interest of members of financial reporting groups and to terminate the deferral of active income of controlled foreign corporations, and to amend the Securities Exchange Act of 1934 to require the disclosure of total corporate tax paid by a corporation in each annual report required to be filed under such Act, and for other purposes. 1. Short title This Act may be cited as the Tax Fairness and Transparency Act 2. Limitation on interest deduction for excessive interest of members of financial reporting groups (a) In general Section 163 (n) Limitation on excessive interest of members of financial reporting groups (1) Limitation (A) In general If this subsection applies to any corporation for any taxable year, no deduction shall be allowed under this chapter for the taxable year for interest expense to the extent that such expense exceeds the sum of— (i) the amount of interest on indebtedness of the corporation includible in the corporation’s gross income for the taxable year, plus (ii) the corporation’s proportionate share of the financial reporting group’s net interest expense for the taxable year computed under United States income tax principles. (B) Proportionate share of net interest expense For purposes of subparagraph (A)(ii)— (i) In general A corporation’s proportionate share of the financial reporting group’s net interest expense means the amount equal to the percentage of the group’s net interest expense which bears the same percentage as the corporation’s earnings bears to the group’s earnings. (ii) Earnings For purposes of clause (i), earnings shall be the sum of net earnings plus net interest expense, taxes, depreciation, and amortization. (iii) Determinations relating to earnings For purposes of clause (ii), earnings, net interest expense, taxes, depreciation, and amortization with respect to a financial reporting group shall be as reflected on the financial reporting group’s financial statements for the taxable year ending in the taxable year of the corporation. (C) Alternative determination In lieu of the limitation in subparagraph (A), if— (i) a corporation fails to substantiate the corporation’s proportionate share of the financial reporting group’s net interest expense for a taxable year, or (ii) a corporation so elects, no deduction shall be allowed under this chapter for the taxable year for interest expense to the extent that such expense exceeds 10 percent of the corporation’s adjusted taxable income (as defined under subsection (j)(6)(A)). (2) Corporations to which subsection applies (A) In general This subsection shall apply to any corporation for any taxable year if the corporation is a member of a financial reporting group. (B) Certain corporations not included This subsection shall not apply to any corporation which— (i) is a corporation predominantly engaged in the active conduct of a banking, financing, or similar business, or (ii) has less than $5,000,000 of net interest expense for the taxable year. (C) Financial reporting group For purposes of subparagraph (A), the term financial reporting group (D) Subgroups For purposes of this subsection, all members of an expanded affiliated group (as defined in section 7874(c)(1)) shall be treated as 1 corporation. (3) Net interest expense The term net interest expense (4) Carryforward (A) Disallowed interest Any amount disallowed under subparagraph (A) or (C) for any taxable year shall be treated as an interest expense in the next taxable year, and such amount shall not be taken into account for purposes of applying subsection (j)(2)(A)(ii) for such taxable year. (B) Excess limitation The excess (if any) of the sum determined under paragraph (1)(A) (i) and (ii) for a taxable year over the amount of interest expense deducted under this subsection for the taxable year shall be added to the limitation determined under paragraph (1) for the next taxable year (determined without regard to this subparagraph). No excess limitation may be carried to more than 3 taxable years. (5) Election The election under paragraph (1)(C)(ii) shall be made at such time and in such manner as the Secretary may prescribe by regulations. (6) Regulations The Secretary shall prescribe such regulations and other guidance as may be necessary to carry out the purposes of this subsection, including regulations to— (A) coordinate the application of this subsection with other interest deductibility rules, (B) define financial services entities, (C) permit financial reporting groups to compute the group’s non-United States net interest expense without making certain adjustments required under United States income tax principles, (D) provide for the treatment of pass-through entities, and (E) allow the use of financial statements prepared under other countries’ generally accepted accounting principles in appropriate circumstances where a financial reporting group does not prepare financial statements under United States generally accepted accounting principles or international financial reporting standards. . (b) Coordination with 163(j) Section 163(j)(2)(A) This subsection shall not apply to any corporation which is a member of a financial reporting group to which subsection (n) applies. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3. Termination of deferral of active income of controlled foreign corporations (a) In general Section 952 (e) Special application of subpart (1) In general For taxable years beginning after December 31, 2017, notwithstanding any other provision of this subpart, the term subpart F income (2) Applicable rules Rules similar to the rules under the last sentence of subsection (a) and subsection (d) shall apply to this subsection. . (b) Effective date The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2017. 4. Requirement to disclose total corporate taxes paid (a) In general Section 13 of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m (s) Disclosure of total corporate taxes paid (1) Issuer disclosure requirement Each issuer required to file an annual or quarterly report under subsection (a) shall disclose in that report— (A) the total pre-tax profit of the issuer during the period covered by the report; (B) the total amount paid by the issuer in State taxes during the period covered by the report; (C) the total amount paid by the issuer in Federal taxes during the period covered by the report; and (D) the total amount paid by the issuer in foreign taxes during the period covered by the report. (2) Disclosure of Country-by-Country Reporting information Each issuer required to file an annual or quarterly report under subsection (a) shall disclose in that report, for each of its subsidiaries and aggregated on a country-by-country basis— (A) revenues generated from transactions with other constituent entities; (B) revenues not generated from transactions with other constituent entities; (C) profit or loss before income tax; (D) total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities; (E) total accrued tax expense recorded on taxable profits or losses, reflecting only operations in the relevant annual period and excluding deferred taxes or provisions for uncertain tax liabilities; (F) stated capital, except that the stated capital of a permanent establishment must be reported in the tax jurisdiction of residence of the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes; (G) total accumulated earnings, except that accumulated earnings of a permanent establishment must be reported by the legal entity of which it is a permanent establishment; (H) total number of employees on a full-time equivalent basis; and (I) net book value of tangible assets, which, for purposes of this section, does not include cash or cash equivalents, intangibles, or financial assets. (3) Availability of information The Commission shall make the information filed with the Commission pursuant to this subsection publicly available through the Commission website in a manner that is searchable, sortable, and downloadable. . (b) Effective date The amendment made by this section shall apply to disclosures made after the date of the enactment of this Act.

Summary: Tax Fairness and Transparency Act This bill amends the Internal Revenue Code to limit the tax deduction of the interest expense of a U.S. corporation that is a member of a financial reporting group (a group that prepares consolidated financial statements according to accepted accounting principles or international financial reporting standards) to: (1) the amount of interest on indebtedness of the corporation includible in the corporation's gross income for the taxable year plus its proportionate share of the group's net interest expense in the taxable year computed under U.S. income tax principles; or (2) not more than 10% of the corporation's adjusted taxable income, if the corporation fails to substantiate its proportionate share of interest expense or so elects. The bill exempts from the limitation a corporation that is predominantly engaged in the active conduct of a banking, financing, or similar business or that has less than $5 million of net interest expense for the taxable year. The bill also modifies the definition of subpart F income (i.e., income of a controlled foreign corporation earned outside the United States that is not tax-deferred) to include income of a controlled foreign corporation derived from any foreign country. This modification is applicable to taxable years beginning after December 31, 2017. The bill amends the Securities Exchange Act of 1934 to require each issuer of a security who is required to file an annual or quarterly report to disclose specified: (1) details regarding pre-tax profits and taxes paid; and (2) corporate financial information, aggregated on a country-by-country basis, for each of its subsidiaries.