On September 27, 2017, the White House and Republican congressional leadership released a nine-page outline (the Framework) summarizing the current legislative effort on comprehensive tax reform. The Framework offers few surprises and leaves critical details open, but it is likely to be the starting point as Congress addresses federal tax reform issues in the coming months. It remains to be seen which provisions proposed in the Framework will actually become new law and in what form they will be adopted. Regardless, adoption of several of the key provisions, like a corporate tax rate cut, will have a significant impact on M&A activity. In addition, there are also many less obvious provisions that may indirectly, but powerfully, affect the M&A market if adopted. This memorandum outlines some of the key areas with which the M&A market will be particularly concerned.
The Framework is a very high-level outline with few details. Further, it can be expected that the political process will result in many changes before final legislation is enacted and, indeed, it is possible that, in the current political climate, no significant tax reform legislation will be adopted. The congressional tax-writing committees will be working hard during the coming weeks (and possibly months) in developing detailed legislative language to implement the Framework’s high-level concepts. Reports indicate that the House Ways and Means Committee plans to mark-up tax reform legislation by the end of October, with the goal of passage of a tax reform bill in mid-November, followed by approval by the Senate, and the hope of signing final legislation by year-end—though this timing is both aggressive and non-binding. As the details are filled in, hard choices will have to be made in order to fit a tax reform package within any realistic budget parameters, and many technical, timing and transitional issues will have to be addressed.
McDermott’s Corporate and Tax teams are closely monitoring activity in this area and are advising clients on potential impacts and planning responses. We will continue to provide general tax reform updates as circumstances warrant as well as more detailed examinations of specific aspects of tax reform.