US Tax Policy: What’s Staying, What’s Going, and What’s Next?
Feb 27, 2025
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Pat Brown, International Tax Partner at PwC and former VP of Tax at General Electric, joins Doug McHoney to discuss the evolving landscape of U.S. corporate tax policy. They dive into the implications of recent regulations, including disregarded payment loss rules and cloud sourcing. With a new administration, they assess the fate of these rules and the ticking time bomb of expiring provisions from the 2017 Tax Cuts and Jobs Act. The conversation also touches on international tax challenges and the U.S. response to OECD proposals, providing valuable insights for businesses navigating the future.
The finalization of disregarded payment loss regulations represents a significant shift in U.S. tax policy, impacting multinational corporations with foreign subsidiaries.
Recent updates to cloud transaction regulations aim to clarify compliance for taxpayers while adapting to modern business models and incorporating familiar state tax concepts.
As the expiration of key provisions from the 2017 Tax Cuts and Jobs Act approaches, Congress is under pressure to navigate fiscal implications and potential tax policy reforms.
Deep dives
PwC's Pillar 2 Engine
PwC has developed a cloud-based centralized rules engine for Pillar 2 modeling, compliance calculations, and provisions, leveraging over two decades of international tax technology. This innovative engine, designed by a team of experts, aims to streamline the complexities inherent in Pillar 2 tax regulations. By integrating advanced technology, PwC intends to enhance the accuracy and efficiency of tax compliance for multinational corporations. The engine is currently available as a service, signaling a significant advancement in the tools available for managing international tax obligations.
Final Regulations on Disregarded Payment Loss
The U.S. Treasury Department has finalized regulations on disregarded payment loss, which allows taxes to be imposed on income items that were previously considered non-existent for tax purposes. This marks a significant shift in policy, potentially impacting U.S. companies with foreign subsidiaries making payments to parent companies. The controversial nature of these regulations arises from their departure from established principles regarding dual consolidated losses. With effective dates set for January 2026, insights into these regulatory changes underline the potential for varying interpretations under different administrations.
Revisions of Cloud Transaction Regulations
Recent regulations surrounding cloud transactions have taken a more conventional approach, refining rules established as far back as 1998 while also incorporating modern business models. The final regulations, which transitioned from proposed forms, introduce a predominant character standard to simplify taxpayer compliance regarding the classification of cloud transactions. Additionally, they establish a multi-factor approach for sourcing cloud transaction revenue, echoing concepts familiar to state tax experts. As these updates unfold, taxpayers may find improved clarity in navigating the evolving digital landscape.
Impending Expiration of Tax Cuts and Jobs Act Provisions
As 2025 approaches, many provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire, particularly those affecting individual tax rates that were enacted under reconciliation procedures. With significant corporate sections remaining intact, the focus is now on how Congress will address the fiscal implications posed by these expirations. The need to act on individual tax policies creates an environment ripe for legislative maneuvering, with various stakeholders vying for attention within the reconciliation process. Corporate tax provisions, especially those linked to the BEAT and Section 250 deductions, will likely receive considerable scrutiny as Congressional discussions progress.
Debate on Corporate Tax Reforms
The ongoing discussions surrounding potential reforms to corporate taxes, including the corporate tax rate and state and local tax deductibility, are gaining traction as reconciliation efforts ramp up. Various proposals suggest that limiting the deductibility of state and local taxes could generate significant revenue, although concerns arise regarding the impact on corporations operating in high-tax states. Additionally, the future of Base Erosion and Anti-Abuse Tax (BEAT) is uncertain, with insiders suggesting that revisions could align with prior proposals discussed during the Build Back Better Act deliberations. These debates will shape the trajectory of corporate taxation moving forward, reflecting the complexities of balancing fiscal responsibility and tax competitiveness.
Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Pat Brown, an International Tax Partner and Co-Leader of PwC’s Washington National Tax Services practice. Together, they unpack the state of US corporate tax policy in 2025, analyzing how regulatory, legislative, and geopolitical forces could shape the next era of taxation. Doug and Pat dissect the final regulations issued in the closing days of the Biden administration, including the controversial disregarded payment loss (DPL) regulations, finalized and proposed digital content and cloud sourcing rules, and updates on corporate basis-shifting transactions. With a new administration in power, they explore whether these rules will stand, be modified, or be repealed entirely—and what this means for business certainty and planning. The conversation then pivots to legislative challenges, as the expiration of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) creates a ticking time bomb for tax policy. Finally, they tackle the international tax front, where the US f administration responds to the OECD’s Pillar Two and potential digital services tax (DST) retaliation under new proposals like Section 899.
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