Senate Finance Committee Releases Tax Reform Proposals

The November 9 release of the Senate Finance Committee Chairman’s Mark has put into high gear the race to complete once-in-a-generation tax reform. A mere five hours after the House Ways and Means Committee completed a four-day markup and voted its legislation out of Committee along party lines (further discussed here), Senate Republicans released their “conceptual draft,” which they plan to markup on Monday, November 13. Senate Republicans hope to vote on the bill the week after Thanksgiving. A common talking point among tax policy folks is that the Senate version will control and will be handed back to the House with a take-it-or-leave-it message. That said, our preliminary review of the Senate’s conceptual draft has identified significant differences between the House and Senate proposals, suggesting a conference committee seems likely if each body passes a bill, unless the House simply accepts the final Senate bill, as it did with respect to the Senate 2018 budget resolution. We will update this portion of our assessment as the Senate Finance Committee markup continues, and as we continue to analyze the differences between the two proposals. In the event a true conference is necessary, there is no doubt that it would impact both the timing and substance of the Tax Cuts and Jobs Act. In an ideal scenario, the GOP still intends to finish tax reform by the end of the year, securing their much-needed political “win” before next year’s midterm elections.

Herein, we highlight key aspects of the Senate Republican proposal, starting with an overview of key domestic provisions, followed by points applicable to multinationals.

Domestic Provisions

Businesses

  • Corporate Rate – Starting in 2019, reduces the corporate tax rate to 20% and repeals the deduction for income attributable to domestic production activity
  • AMT – Repeals the corporate alternative minimum tax, but limits the NOL deduction to 90% of taxable income
  • NOLs – Repeals rules permitting the carryback of NOLs (other than for farming), but allows indefinite carryforward of post-2017 NOLs
  • Immediate Expensing – Allows immediate and full expensing of plant and equipment for the next five years (six years for certain longer lived assets)
  • Cost Recovery Period – Sets the cost recovery period for nonresidential real and residential rental property at 25 years and creates a class of property called “qualified improvement property” that has 10-year general recovery period and a 20-year alternative depreciation system recovery period
  • Interest Deductibility – Limits the net interest deduction to 30% of “adjusted taxable income” but allows indefinite carryforward of the denied deduction, retains full deductibility for small businesses, public utilities and certain real estate-related businesses
  • Like Kind Exchanges – Repeals like kind exchanges for all property other than real property
  • Meals and Entertainment – Similar to the House bill, eliminates deductions for entertainment expenses and limiting the deduction for meals expenses to 50% in all cases
  • Timing of Income Recognition – Requires income to be included in income no later than the year in which it is included in income in certain financial statements that a taxpayer may prepare
  • Section 179 – Increases section 179 expensing for small businesses and raising the phaseout range
  • Rehab Credit – Reduces the 20% rehabilitation credit to 10% and limiting eligible properties; also modifies the credit for clinical testing of orphan drugs, but not making changes to most other business credits
  • Employee v. Independent Contractor – Liberalizes rules for determining when a service provider is an independent contractor rather than an employee and changes information reporting thresholds

Flow Thru Entities

  • Gain on Partnership Sale – Taxes the gain on the sale of a partnership interest on a look-thru basis
  • Partnership Losses – Expands the definition of substantial built-in loss for purposes of partnership loss transfers
  • Pass-thru Entity Rate – Lowers tax on certain pass-thru business income with a special 17.4% “domestic qualified business income” deduction; the special deduction is limited to 50% of a taxpayer’s wages properly allocated to “qualified business income,” which does not include reasonable compensation, certain guaranteed partner payments or certain investment income; the special deduction is not available for specified services businesses, including law, engineering, architecture, accounting, health, consulting, financial and brokerage services or similar businesses

Tax-Exempt Bonds

  • Refunding Bonds – Eliminates tax-exempt advance refunding bonds but, unlike the House bill, leaves untouched tax-exempt qualified private activity bonds, the use of tax-exempt bonds to finance professional sports stadia, and tax credit bonds; for more in-depth analysis, visit our Public Finance Tax Blog here

Executive Compensation

  • Nonqualified Deferred Comp – Effectively eliminates elective nonqualified deferred compensation and accelerates the recognition of income by employees when there is no substantial risk of forfeiture
  • Compensation Deductions – Eliminates deductions for compensation over $1 million for public companies and introduces a companion excise tax on such compensation for tax-exempt employers
  • Fringe Benefits – Reduces current and long-established fringe benefits

Estate Planning

  • Death Tax – Doubles the federal estate and gift tax lifetime exemption of approximately $5 million to approximately $10 million

Individual Changes Affecting Businesses

  • State and Local Tax Deduction – Repeals the deduction for all state and local taxes not incurred in connection with a business
  • Mortgage Interest Deduction – Unlike the House bill, retains the current mortgage interest deduction
  • Carried Interest – Retains current law rules relating to carried interest, but it is likely this issue will be addressed in the Senate Finance Committee markup

International Provisions

  • Territorial System – Similar to the House bill, moves to a territorial system, exempting most foreign dividends from US tax
  • Repatriation Tax – Transitions to this territorial system by taxing currently all existing offshore earnings; as in the House proposal, liquid assets would be taxed at a higher rate than illiquid assets and the taxpayer can elect to pay the resulting tax over eight years
  • Offshore Intangibles Income – Includes an exception to the new territorial system for certain offshore income from intangibles, which is taxed currently
    • But adds incentives for US companies that exploit intangibles outside the US and incentives for “onshoring” intangibles that are currently offshore
  • Hybrids – Disallows deduction of certain related-party payments to hybrid entities
  • Inversion – Provides no preferential treatment for dividends from inverted companies
  • DISC/IC-DISC – Repeals DISC and IC-DISC regimes
  • Base Erosion – Imposes strong limits on US tax base erosion, including:
    • Imposing a tax on excess intangible income earned by foreign subsidiaries subject to low foreign taxes, coupled with incentives for US corporations that exploit their technology abroad from the US
    • Denial of excess interest deductions for US corporate members of world-wide groups to prevent disproportionate layering of debt on US members
    • Imposing a tax on certain payments by US corporations to foreign related parties where the US corporation receives US tax benefit with respect to the payment

What’s Next?

So here we are with all eyes on the Senate. Let us recap, then look ahead: Earlier this week, the Ways and Means Committee approved its bill by a party-line vote of 24-16, after including a last-minute amendment to bring the bill’s impact on the deficit below the $1.5 trillion reconciliation threshold. The House Rules Committee will meet on Wednesday, November 15 to consider the House bill, signaling that a full House floor vote could take place on Thursday, November 16. Given that Speaker Ryan has reportedly set a record for closing down floor debate in the House, we are expecting a closed rule, with no amendments being offered on the House Floor.

Moving across the Capitol, as previously mentioned, the Senate Finance Committee plans to begin marking up their proposal at 3 p.m. on Monday, November 13. The markup is expected to last at least a week. Looking ahead, Senate Republicans plan to hold a floor vote the week after the Thanksgiving holiday.

That said, GOP leadership has at least two significant concerns they will have to deal with: political pressure from within the Republican Party and the Byrd Rule. First, significant differences exist between the House and Senate versions of the bill. For example, the Senate bill eliminates the state and local tax (SALT) deduction. After carefully crafting a key compromise in the House to allow deductions for property taxes up to $10,000, House Republicans in high-income earning states would be back to square one in the Senate proposal. Importantly, House Republicans have a 22-vote margin of error in the House – and there are nearly 30 Republicans from California, New York and New Jersey who could oppose a bill that eliminates the SALT deduction. (Recall that the budget passed the House by the thinnest of margins. Was this carefully orchestrated to allow certain members to avoid taking tough votes, or was it a true reflection of the margin that Republicans are working within the House?) We expect other key differences to continue to surface as the process continues.

Second, and perhaps equally challenging, as currently drafted, the Senate’s conceptual draft is not Byrd-rule-compliant. Thus, during next week’s markup, look for significant discussion and major changes to the proposal, expirations of certain provisions or other limitations that could easily disrupt and derail the considerable progress that has been made to date.

All we can say is “hold on” – it’s going to be a bumpy ride.

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House Republicans Propose Tax Reform Legislation – Will This Become Law?

It’s here! House Republicans have released the legislative text of the most serious effort to reform the US Tax Code since 1986. Republican tax-writers have come a long way from the “Blueprint” and the “Unified Framework” – they have offcially broken ground on sweeping tax reform legislation titled the Tax Cuts and Jobs Act (the Bill). Although they have made significant progress, Congress still has more work to do to pass a bill by their proclaimed end-of year target. On the other side of the Capitol, the Senate does not plan merely to rubber-stamp the House proposal. In fact, Senate Republicans intend to release their own plan next week and begin a markup during the week of November 13. With that, the content of a final bill remains uncertain at best. Although the substance of the final bill remains a work in progress, one aspect of this process is certain: there is a political imperative for Republican lawmakers to secure a “win” before next year’s midterm elections. Below, we highlight key aspects of the proposed legislation, starting with a brief overview of some domestic provisions, followed by more detailed points applicable to multinationals.

Domestic Provisions

Included in the Bill are several important domestic changes, the most significant of which are:

  • Corporate tax rate has been reduced to 20% on a permanent basis beginning in 2018
  • Rate of tax for owners of certain pass-through entities will be 25%
  • Immediate expensing for qualified property placed in service after September 27, 2017 for five years
  • Net interest expense deduction capped at 30% of adjusted taxable income with some exceptions
  • Elimination of most investment credits, but Research and Experimentation credit and Low-Income Housing Tax Credit remain
  • NOL carryover may only be used to offset 90% of a taxpayer’s taxable income and generally no carryback allowed
  • Corporate AMT has been eliminated
  • Significant changes to the taxation of insurance companies and the non-profit sector

Non-US Earnings

Territorial Tax System

The Bill includes significant changes to the taxation of business income earned outside the US. Under our current system, US tax on earnings from active foreign business can be deferred until those earnings are repatriated, subject to several exceptions. This is called a “deferral system” because the inherent assumption in the system is that all foreign earnings will eventually come back to the US and be taxed. This Bill proposes a change from this “global” system of taxation to a “territorial” system in which non-US business income generally is not taxed in the US.

Participation Exemption

This new territorial system is achieved primarily through a dividend exemption approach. US corporate shareholders that own 10% or more of a foreign corporation will receive a 100% exemption on the foreign-sourced portion of dividends received from the foreign corporation. This provision is intended to put US multinationals on more of an equal footing with foreign competitors when doing business outside the US and eliminate the tendency to “lock up” foreign earnings, something that is encouraged under the current deferral system. This territorial approach brings along with it several other changes, including:

  • Elimination of the US foreign tax credit with respect to exempt dividends
  • Elimination of the deemed dividend US companies endure when their foreign subsidiaries make certain investments in US property
  • Denial of a “double benefit” if foreign subsidiary stock is sold at a loss by reducing the US parent’s basis in the stock for purposes of calculating loss

The exemption would apply to dividends received after 2017 and the companion changes generally take effect starting in 2018.

One-Time Tax on Existing Foreign Earnings

As part of the transition to the new territorial system, the Bill would deem a repatriation of a proportionate share of all previously deferred (i.e., “locked up”) foreign earnings from 10% or greater foreign subsidiaries. The deemed repatriation will not include any previously taxed earnings and will be net of foreign subsidiary earnings deficits. All earnings held in cash or cash equivalents will be taxed at a 12% tax rate and all other such assets will be taxed at a 5% rates. The deemed repatriation generally occurs in 2018 and the resulting tax can be paid in installments over eight years.

Global Minimum Tax on “High Return” Foreign Income

In order to head off inappropriate US tax base erosion that could result from the foreign dividend exemption of the new territorial system, the Bill will implement what is effectively a new 10% minimum tax on “high return” foreign earnings of multinational businesses.

This works by subjecting the US parent of one or more foreign subsidiaries to current tax on 50% foreign subsidiaries aggregate high return income (effectively resulting in a 10% tax rate assuming the US corporate rate is 20%). The aggregate approach means that the computations are not made on a country-by-country or entity-by-entity basis. For this purpose, high return income is the excess of the foreign subsidiaries’ aggregate net income over a so-called routine return on the foreign subsidiaries’ aggregate adjusted bases in depreciable tangible property reduced for interest expense. The routine return for this purpose is 7%, plus the federal short-term rate (slightly above 1% at present). High return income would not include income effectively connected with a US trade or business, subpart F income, certain foreign insurance and financing income, and certain foreign commodities income.

A US parent is taxed on foreign high return income each year regardless of whether the income was actually repatriated to the US and a partial (80%) foreign tax credit will be allowed. This means that there will be a residual US tax on high return income unless a 12.5% or greater foreign tax is actually paid on the income. The foreign tax credit will have no carry-forward or carry-back for this purpose.

The high return income tax is effective generally after 2017.

Other International Provisions

The Bill includes several other changes to US international tax, including:

  • Changes to the source of income with respect to inventory produced in the US
  • Elimination of current taxation of certain foreign oil-related income and historic shipping income
  • The controlled foreign corporation “look through” rule in 954(c)(6) is made permanent
  • Changes to other controlled foreign corporation rules

Investment Into the US

The Bill contains provisions that appear principally intended to implement the undertaking in the September “Unified Framework” to combat erosion of the US tax base through provisions that are also intended to level the playing field between US-based multinational businesses and foreign-based multinational businesses operating in the US.

Interest Payments

The Bill provides for the disallowance of deductions for related party interest payments by a US corporation that is a member of an “international financial reporting group” and has annual global gross receipts of more than $100 million. Under the provision, interest deductions by the US corporation would be disallowed to the extent the US corporation’s share of the group’s global net interest expense exceeds 110% of the US corporation’s share of the group’s global earnings computed on an EBITDA basis (i.e., the US corporation can have 10% more leverage than the global group). This provision, which would be effective for taxable years beginning after 2017, would be applied in tandem with the Bill’s general limitation on interest deductibility described above. The deduction would be disallowed pursuant to whichever of the two provisions results in the largest disallowance. Any disallowed interest could be carried forward for five years and applied on a FIFO basis. For this purpose, an “international financial reporting group” means a group that prepares consolidated financial statements and includes either at least one foreign corporation engaged in a trade or business in the US or at least one domestic corporation and one foreign corporation.

Other Payments

Subject to certain limited exceptions, the Bill imposes a 20% “excise tax” on deductible or other tax-benefitted payments (other than interest) made by a US corporation to a foreign corporation that is a member of the same “international financial reporting group.” In order to avoid this tax on the gross payment, the payee foreign corporation can instead elect to treat those payments as taxable income that is effectively connected with a US trade or business. If such an election were made, those payments would be subject to US tax and, if no election were made, no deduction would be allowed for the excise tax paid by the US corporation. The provision would be effective for taxable years beginning after 2018 and would be applicable with respect to those international financial reporting groups with payments from US affiliates to their foreign affiliates of at least $100 million annually.

Treaty Benefits

Notably, a revised draft of the Bill removed the limitation on treaty benefits for certain deductible payments described below. In the original draft, the Bill addressed the situation where a foreign controlled US entity makes a deductible payment that is classified as “fixed or determinable, annual or periodical” (e.g., dividends, interest, rents, etc.) to another entity that is controlled by the same foreign parent and located in a jurisdiction that has a tax treaty with the US under which the 30% statutory withholding rate on the payment is reduced or eliminated. Under the provision, which would have been effective for taxable years beginning after the date the Bill is enacted, the 30% withholding rate would not be reduced by any treaty unless it would have been reduced had the payment been made directly by the US payor to the foreign parent.

Where Do We Go From Here?

With a tight timeline and intra-party fissures already emerging, Republicans have difficult weeks ahead of them. As for timing, the House Committee on Ways and Means plans to begin its markup of the legislation November 6 and report it to the House floor by November 10. As previously mentioned, Senate Republicans intend to release their plan next week and begin a markup in the Finance Committee during the week of November 13. Though he did not mention the Senate, President Trump recently said that he expects the House to pass legislation by Thanksgiving and for a bill to reach the Oval Office by Christmas. That said, prospects for differences between House and Senate bills suggest a conference committee may write the final legislation, which could impact both the timing and substance of a final bill. And if that ambitious timeline did not make things hard enough, key factions of the Republican Party have already come out against the Bill. As the details of the plan become known, there already appears to be evidence of a schism among traditional GOP establishment groups (i.e., the Club for Growth, homebuilders, realtors and even Republican members from high-taxed states have all expressed concerns or outright opposition to the Bill). Although there is still a long way to go, Republicans are building momentum with each passing day, thereby increasing the chances of delivering the most comprehensive tax reform bill in a generation.

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Senate Votes to Overturn CFPB Arbitration Rule

Late last night, the US Senate voted 51 to 50 to repeal a Consumer Financial Protection Bureau (CFPB) rule prohibiting class action waivers in arbitration agreements. All but two Republicans (Senators Lindsey Graham (SC) and John Kennedy (LA)) voted to repeal the CFPB’s arbitration rule, while all Democrats voted against repeal. Vice President Mike Pence broke the 50-50 tie. In July, the House also voted to repeal the CFPB arbitration rule. President Trump is expected to sign the resolution. In a statement following the Senate vote, the president said: “By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefitted the most from the CFPB’s uninformed and ineffective policy.”

The Senate vote came on the heels of a report from the US Treasury finding that the CFPB’s arbitration rule would bring little benefit to consumers at great cost. Earlier this fall, a review by the Office of the Comptroller of the Currency also determined that the CFPB’s arbitration would likely cause significant increase in credit costs to consumers.

The House and Senate voted to repeal the CFPB rule under the Congressional Review Act (CRA), which allows Congress to overturn a recently finalized agency rule by a majority vote. Significantly, the CRA does not just repeal the rule. Under the CRA, the rule cannot be “reissued in the same form” nor can a “new rule” that is “substantially the same” as the disapproved resolution be issued unless such action is specifically authorized by a law enacted subsequent to the disapproval of the original rule.

In light of these recent developments in Congress and the continued enforcement of arbitration agreements in the courts, it is more important now than ever to review your use of arbitration agreements and ensure that your agreements are up to date, include the latest guidance from courts, and contain the provisions you need, such as class action waivers. We have seasoned and experienced regulatory, litigation, and policy lawyers who can ensure that your arbitration agreements will be enforceable and effective in reducing litigation costs.

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Tracking Anti-Opioid Legislation in Congress

“Overdose deaths, particularly from prescription drugs and heroin, have reached epidemic levels.”

-Chuck Rosenberg, Acting Administrator, Drug Enforcement Administration, October 2015[1]

Opioid abuse in the United States has been a topic of much discussion in recent years, but the problem continues to grow.  Since 1999, the number of opioid-related overdose deaths has quadrupled.[2]  In a single year from 2014 to 2015, the number of opioid-related overdose deaths increased by over 15 percent. Now, close to two-thirds of all overdose deaths involve some type of opioid.[3] The Health and Human Services Department estimates health and social costs related to prescription opioid abuse to be $55 billion.

The growing epidemic in America is a problem without a short-term solution and will require long-term thinking coupled with substantial resources from, and coordination between, authorities at the federal, state, and local government level.

On August 10, 2017, President Trump announced his intention to declare the epidemic a national emergency, and he will reportedly soon make the official declaration.  Congress, on the other hand, has yet to pass meaningful legislation or settle on a coherent strategy, settling only for minor plus ups in the appropriations process. This is despite the introduction of numerous legislative ideas.

As of August 2017, 31 bills had been introduced in Congress that aim to address some aspect of the opioid crisis.  These bills fall broadly into one of five categories:  (1) increased funding to combat the problem; (2) additional regulations for prescribers of opioids; (3) additional regulations for the sale and manufacture of opioids; (4) adjustments of the criminal aspects related to opioid sales and use; and (5) miscellaneous.

Increase Funding

Much of the proposed legislation involves increasing funding for programs to combat the excessive use of opioids or the creation of grant programs that target different aspects of the opioid epidemic. Many of the bills are proactive, and look to decrease future drug abuse. S. 554 and H.R. 1436 contain provisions for grants that would train health care practitioners in the best practices involving opioid prescriptions, including information about pain management and substance abuse recognition. S. 786 would allocate funding for grants aimed at opioid education in schools. This bill has a special focus on student-athletes, since those students are, in theory, more likely to receive an opioid prescription due to injury resulting from a game or practice. S. 318 would enhance the grant given to “Cops on the Beat” (a subset of the Omnibus Crime Control and Safe Streets Act of 1968) to encourage the creation of more programs aimed at reducing illegal drug use and manufacturing, with a special focus on opioids.

Another class of bills involving money is more reactive in nature. These bills would dedicate grant money towards the existing consequences of opioid abuse.  Some of these bills would help expand access to treatment centers and substance abuse programs, like H.R. 992, which would increase clinical services for opioid abuse and addiction, and H.R. 2038, which would impose a fee on the sale of any active prescription opioid that would then be used for substance abuse treatment efforts.

Other reactive bills focus more on the families affected by opioid and other drug abuse. H.R. 2834 would appropriate funds for the Public Health Service Act to improve the well-being of children and families affected by substance abuse. H.R. 2501 would amend the Social Security Act to give states the option of providing medical assistance to infants with neonatal abstinence syndrome and their families.[4] S. 1268 would amend the Social Security Act to allow foster care maintenance payments for children with parents in licensed, residential, family-based treatment facilities for substance abuse.

H.R. 664 is an example of a bill that is both proactive and reactive. It would appropriate money for programs that expand educational efforts about opioid abuse, addiction, and treatment, and also would make money available to provide first responders with naloxone (an anti-overdose drug).

Regulate Prescribers

Several of the bills would aim to better regulate those prescribing the substance. S. 778, for example, would require prescribers to consult with a prescription drug monitoring program (“PDMP”) before starting patients on certain controlled substances. It would also require prescribers to report when misuse occurs.

Along a similar line, H.R. 993 would require practitioners to screen for potential drug abuse or misuse before prescribing specific classes of opioids and would appropriate funding for grant programs that would develop a process for evaluating dispensing entities. S. 892 would require a certification from all prescribers that patients receiving initial treatment will not be prescribed more than a certain amount of opioids.  S. 1049 would amend the Federal Food, Drug, and Cosmetic Act to provide information about drug formulas to health care providers, and H.R. 2063 would amend the Controlled Substance Act (“CSA”) to require the training of all registered opioid providers.  H.R. 1854 would require practitioners to consult a PDMP prior to starting treatment with certain opioids. It would also require the Attorney General to facilitate the establishment of an inter-state data-sharing system that would help notify practitioners when patterns of drug misuse are detected.

Regulate Sale and Distribution of Legal Opioids

Some bills focus on the distribution and sale of legal opioids. S. 5230 would impose a fee on the sale of any active opioid, with the profits being designated for substance abuse treatment efforts. S. 1079 would require the FDA to rescind the approval of one opioid for every new opioid that is approved.  H.R. 2025 would allow certain applications of drugs to be eligible despite containing labelling information about abuse deterrent properties.  S. 1078 would require the Commissioner of the Food and Drug Administration to include medical and scientific information about any drug that he/she approves that the advisory committee rejects.  S. 1077 also deals with the FDA, but instead of creating requirements, it would amend the mission statement to specifically include opioid monitoring as a goal of the organization.

Criminal Actions

One of the challenges in dealing with the opioid epidemic is the accelerated rate new chemical designations are being introduced. H.R. 2851 and H.R. 1781 seek to combat this problem by allowing the Attorney General to issue temporary orders adding new drugs or substances to the list of banned substances under the CSA. Additionally, both bills would penalize the false labeling of opioids. H.R. 1781 would also change the amount of a controlled substance necessary to trigger penalties for possession, certain sentencing guidelines, as well as other aspects of controlled substance monitoring. Another bill, H.R. 1732, would update part of the CSA to include certain “designer drugs.”

Other Legislation

A handful of bills don’t fit neatly into the categories above.  H.R. 2142 and S. 708 aim to “disrupt[] the flow of drugs” by increasing the number of chemical screening devices available to the U.S. Customs and Border protection.[5]  These bills are in reaction to the ease of ordering relatively small amounts of prescription opioids off of the internet and the difficulty of identifying them when they are shipped into the United States. [6]  H.R. 994 would require the Comptroller General to issue a report about the treatment capacity and needs of the United States as it relates to substance abuse disorders.  H.R. 1554 and S. 581 would require the Secretary of Health and Human Services to create standards for “prominently displaying” opioid addiction history on medical records.

Conclusion

What bills will move forward in this Congress remains to be seen, but the sheer number of proposals indicate that Washington has realized the opioid crisis is something that requires federal attention.

Elaine Hillgrove, a Squire Patton Boggs Summer Associate and student at the University of North Carolina School of Law, helped write this article. 

 

Footnotes

[1] 2015 National Drug Threat Assessment Summary, U.S. Department of Justice:  Drug Enforcement Administration (Oct. 2015), https://www.dea.gov/docs/2015%20NDTA%20Report.pdf.

[2] Understanding the Epidemic:  Drug overdose deaths in the United States continue to increase in 2015, Centers for Disease Control and Prevention (Dec. 16, 2016), https://www.cdc.gov/drugoverdose/epidemic/index.html.

[3] Increases in Drug and Opioid-Involved Overdose Deaths – United States, 2010-2015, Centers for Disease Control and Prevention (Dec. 29, 1016), https://www.cdc.gov/mmwr/volumes/65/wr/mm655051e1.htm.

[4] Neonatal abstinence system is a drug withdrawal syndrome that occurs after birth, primarily in infants exposed to opioids in utero.  From 2000-2012, the incidence of NAS has increased 383%, coinciding with the rising opioid epidemic. Incidence of Neonatal Abstinence Syndrome — 28 States, 1999–2013, Centers for Disease Control and Prevention (Aug. 12, 2016), https://www.cdc.gov/mmwr/volumes/65/wr/mm6531a2.htm.

[5] Id.

[6] Tsongas, Fitzpatrick introduce bipartisan bill to stem flow of illicit fentanyl into U.S., Congresswoman Niki Tsongas (April 25, 2017), https://tsongas.house.gov/press-releases/tsongas-fitzpatrick-introduce-bipartisan-bill-to-stem-flow-of-illicit-fentanyl-into-us/.

Treasury Report on Identifying and Reducing Regulatory Burdens

As you will recall, earlier this year, President Trump issued an Executive Order requiring the Department of Treasury to identify regulations issued during the last year of the Obama Administration that would increase burdens on taxpayers and impede economic growth.  After identifying eight such regulations in an interim report released in June, Treasury last week issued a follow-up report with specific recommended actions.

  • Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness

Treasury plans to propose revoking the Section 385 documentation regulations and replacing them with streamlined documentation rules. According to Treasury, the proposed rule should include an effective date that would allow sufficient time for comments and compliance. The proposed streamlined documentation rules are expected to modify the requirements related to a reasonable expectation of ability to pay indebtedness and treatment of ordinary trade payables.

Moreover, Treasury will continue to work with Congress on fundamental tax reform in an effort to address base erosion and earnings stripping while removing tax incentives for foreign takeovers of U.S. companies or for U.S. companies to invert.  That said, Treasury plans to retain the distribution regulations under Section 385 pending enactment of tax reform, as they are seen as necessary to safeguard against earnings stripping.  At the same time, Treasury is considering ways to simplify the distribution regulations and ease compliance if tax reform does not eliminate the need for these regulations.

In addition, the report identifies the following regulations to consider for:

Withdrawal:

  • Proposed Regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes
  • Proposed Regulations under Section 103 on Definition of Political Subdivision

Partial Revocation:

  • Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview
  • Regulations under Section 752 on Liabilities Recognized as Recourse Partnership Liabilities

Substantial Revision:

  • Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies and Real Estate Investment Trusts
  • Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations
  • Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit

Treasury also announced that it will continue to work to identify additional regulations for modification or repeal by evaluating recently-issued significant regulations and initiating a comprehensive review of all regulations, regardless of when they were issued. The comprehensive review has already identified over 200 regulations that Treasury believes should be repealed – a process that will begin this quarter.  According to Secretary Mnuchin, “this is only the beginning of our efforts to reduce the burden of tax regulations…Our tax code has been broken for too long, and this retrospective review, along with our efforts on tax reform, will ensure that we have a tax system that fosters economic growth.”

US Tax Reform – A Global View (Tax Strategy & Benefits Podcast)

Following the publication of the Tax Reform Framework, members of our Tax Strategy & Benefits team sat down to discuss the key policy announcements and consider what is likely to happen next and the possible ramifications for businesses in the US and around the world. We have recorded their conversation as a podcast.

The panel, drawing on our global tax policy and transactional expertise, comprises:

  • Linda Pfatteicher, managing partner, Tax Strategy & Benefits, San Francisco and Palo Alto (Chair)
  • Matthew D. Cutts, chair, Financial Services & Tax Public Policy, Washington DC
  • Mitch Thompson, deputy practice group leader, Tax Strategy & Benefits, Cleveland
  • Jeremy Cape, partner, Tax Strategy & Benefits, London
  • Bernhard Gilbey, practice group leader, Tax Strategy & Benefits, London

To listen to the podcast, please click here.

If you have any questions about the issues raised and discussed during this podcast, please contact a member of the panel, any other member of our Tax Strategy & Benefits team or your usual firm contact.

The Path to Tax Reform: Without a Blueprint, Where Are We Headed?

With Congress back in session following its August recess, one agenda item stands above the rest in terms of priority: tax reform.

After several failed attempts at repealing the Affordable Care Act earlier this year, and with few other major achievements nearly nine months into the 115th Congress, Republicans are in need of a win and hoping it might come in the form of reforming the nation’s tax laws. Still, there remain many obstacles that could derail their quest for tax reform.

How Did We Get Here?

As we discussed more than a year ago, the House Republican tax reform “blueprint” served mostly as a conversation starter about tax reform. However, since its release, many of the House Republicans’ proposals – the border adjustable tax (BAT), in particular – received pushback from a variety of industries and ultimately forced tax-writers to reassess their approach to tax reform.

Enter the “Big Six” (Speaker of the House, Paul Ryan (R-WI); House Ways and Means Committee Chairman, Kevin Brady (R-TX); Senate Majority Leader, Mitch McConnell (R-KY); Senate Finance Committee Chairman, Orrin Hatch (R-UT); Treasury Secretary, Steven Mnuchin; and National Economic Council Director, Gary Cohn). Having seen how a lack of consensus ultimately led to the GOP’s inability to repeal and replace the Affordable Care Act, the Big Six have spent the last several months meeting together in an effort to agree upon key tax reform principles to guide tax-writers’ efforts to enact tax reform legislation this year. After significant anticipation and speculation about this additional guidance, the Big Six, just prior to the August recess, released their joint statement on tax reform – a brief statement that addressed only a few of the high-level principles contained in the House GOP’s original blueprint.

The Big Six have spent the last month and a half continuing to seek agreement and hash out key policy details. Having reportedly made significant progress, they are expected soon – potentially as early as next week – to release a detailed framework for tax reform that is intended to serve as a passing of the baton to the tax-writing committees to complete the task of tax reform. While this framework is largely a product of the Big Six, there is an active effort underway to get feedback – and ultimately buy-in – from tax-writers, who want to ensure that they are playing an active role in shaping tax reform. That said, how much guidance it will provide remains uncertain, as Chairman Hatch recently stated that the Finance Committee with not merely “rubber stamp” any framework.

What’s Next?

While we do not expect any additional hearings in the House, Members are continuing the work behind the scenes this month by holding “listening sessions” to discuss individual, business and international tax policy issues. Moreover, in advance of the release of the framework by the Big Six, House Ways and Means Committee Republicans are expected to meet on September 24-25 to discuss the framework so that committee members are comfortable with the product and feel they have appropriate input into the process. Once the framework is set, we anticipate the Ways and Means Committee will move forward shortly thereafter in marking-up their version of tax reform legislation – a process likely to play out over the course of several weeks during mid-to-late October.

As for the Senate, with two hearings on tax reform (individual and corporate) under their belt, the Senate Finance Committee is expected to hold its third and final hearing on tax reform this Congress (like in early October), where it will focus on international tax reform issues. Once finished with hearings, the Finance Committee is also expected to move forward with drafting and marking-up its version of tax reform legislation.

While the White House generally plans to allow tax-writers to take the lead going forward, President Trump will likely attempt to leverage the power of the bully pulpit to try and help get tax reform across the finish line. In fact, over the next two months, the President plans to travel to more than a dozen states – many states where he won the Election and there is a Democratic Senator up for reelection – to make the sales pitch for tax reform and put pressure on potentially vulnerable Democrats to earnestly engage in the process. Though the President will clearly face an uphill battle in negotiating with Democrats, it appears that he is attempting to avoid a repeat of healthcare reform by building a buffer so as to be able to lose a few Republicans and still have sufficient votes to enact tax reform.

Can We Actually Get to Tax Reform?

It is clear that there is a palpable desire – indeed, a political imperative – for enacting tax reform in 2017. However, despite the groundwork that has been laid through hearings, legislative proposals, etc., there are nevertheless certain realties that will challenge even the most valiant efforts to overhaul the nation’s Tax Code.

First and foremost is the need for a budget. While there continue to be calls for bipartisan tax reform on both sides, it is presently unlikely given the current politics in Washington DC. As such, the Senate will almost certainly need to use the budget reconciliation process to pass its tax bill with a simple majority. To do that, however, Congress must first pass a FY 2018 budget with reconciliation instructions for tax reform. While that may sound simple, both Chambers have thus far found the process to be challenging. In the Senate, though nothing has been finalized, it is rumored that Senators Bob Corker (R-TN) and Pat Toomey (R-PA) – both of whom sit on the Senate Budget Committee – have reached agreement on the size and scope of tax reform that they think will garner enough support to pass out of committee and to the Senate floor before month’s end. In the House, the Freedom Caucus has thus far been hesitant to support any budget proposal without knowing more details about tax reform. Though many are confident that the House will ultimately get sufficient buy-in to pass a budget, the House budget will then need to be reconciled with the budget the Senate passes – which may add further difficulties to the mix and continue to slow the process.

From a sheer logistical perspective, the long-list of legislative items that Congress needs to address before year’s end (i.e., funding the government and reauthorizing the Federal Aviation Administration, the National Flood Insurance Program and the Children’s Health Insurance Program) is also problematic, as lawmakers will have limited time to consider comprehensive tax reform. Moreover, the recent deal to fund the government and extend certain programs through December 8 means that Congress will likely be forced to turn their attention to these matters during a period where tax reform should, in theory, be front and center in Washington DC.

Finally, the inter- and intra-party politics also have the potential to play a key role in determining the success of tax reform efforts. Though Democrats writ large have little incentive to work with Republicans under the auspices of tax reform via reconciliation, certain Democratic lawmakers who might feel vulnerable heading into the 2018 Election and are up for reelection will have to make their own determination on how to participate in the tax reform debate. On the other side of the coin, some Republicans are growing concerned about the President’s recent deals with Democrats and may be more willing to work with other Republicans that may share a different viewpoint (e.g., revenue neutral tax reform) on certain tax policies for the sake of getting a deal done without looking to Democrats for votes. Still, some Republican constituencies (i.e., the Freedom Caucus) may well be unmoved in their positions despite the threat of President Trump’s willingness to negotiate across the aisle, potentially setting up an interesting fight within the Republican Party.

Conclusion

With the potential for the most significant reforms to the US Tax Code in 30 years on the horizon, congressional leadership and the Administration can be expected to pull out all the stops this year to ensure that tax reform is successful. Nevertheless, there remain serious doubts about the feasibility of enacting comprehensive tax reform, with some suggesting that the ultimate outcome could essentially be another round of Bush-era tax cuts. As the debate continues, now is a critical time for all those with an interest in tax reform to be actively engaged with tax-writers.

Note: Next week, following the release of the tax reform framework, our team will provide a thorough analysis of the tax policies it contains and the implications for businesses – both in the US and abroad.

NAFTA Modernization Talks – Round One Completed; Next Stop, Mexico

The first round of 5-day negotiations to modernize the North American Free Trade Agreement (NAFTA) concluded on August 20. In a joint statement released by trade officials from the United States, Mexico and Canada, they restated the commitment to updating the deal, continuing domestic consultations, and working on draft text. They also committed to a comprehensive and accelerated negotiation process to bring the agreement up to 21st Century standards to continue benefiting the citizens of North America.

Our sister publication, Latin America Legal, provides a recap for the first round of talks here. The negotiations are expected to resume in Mexico beginning September 1 and goes through September 5. The third and last round is scheduled to be in Canada, reportedly around September 23-27.

Federal Communications Commission Tackles the “Reassigned Number Problem”

Reassigned numbers have been at the center of the surge in litigation under the Telephone Consumer Protection Act (“TCPA”) during the last few years.  By now the story is well known to businesses that actively communicate with their customers: the customer consents to receive telemarketing and/or informational robocalls[1] at a wireless telephone number, but months or years later the customer changes his or her wireless telephone number and—unbeknownst to the business—the telephone number is reassigned to a different person.  When the recipient of the reassigned number starts receiving calls or messages from the business, a lawsuit often ensues under the TCPA because that party has not consented to receive such calls.  The FCC adopted on July 13 a Second Notice of Inquiry (“Second NOI”) that promises to address this problem in a meaningful way.  Specifically, the Second NOI focuses on the feasibility of “using numbering information to create a comprehensive resource that businesses can use to identify telephone numbers that have been reassigned from a consumer who has consented to receiving calls to a consumer who has not.”

Background on the Reassigned Number Problem

Under the current regime, the North American Numbering Plan (NANP) Administrator generally provides telephone numbers to voice service providers—including those who supply interconnected voice—in blocks of 1000.  The voice service providers recycle those numbers in and out of service, such that, after a number has been dropped, the number goes into a pool for a short period and then is brought out of the pool and reassigned to a different consumer.

The “reassigned number problem” occurs when a consumer consents to receive robocalls (telemarketing and/or informational), but then terminates service to the relevant wireless number without informing the businesses the consumer previously gave consent to make the robocalls.  Businesses that find themselves making robocalls to numbers that (unbeknownst to them) had been reassigned to a different consumer increasingly find themselves subject to lawsuits under the TCPA—this even though it has been widely acknowledged that (1) customers often switch telephone numbers without providing notice to businesses and (2) there is no public directory of reassigned wireless numbers that businesses can rely on to identify and scrub reassigned numbers.  When various industry groups and business entities asked the FCC to intervene, the FCC clarified that businesses making robocalls needed the consent of “the actual party who receives a call,” not of the intended recipient of the robocall.  FCC created a so-called “safe harbor” that afforded little protection in practice: a business could make a single call to a reassigned number without triggering liability under the TCPA, but the business would then be imputed with “constructive” knowledge that the number had been reassigned even if the single call did not yield actual confirmation that the number had been reassigned. The FCC did so even as it admitted that the tools available to identify reassigned numbers “will not in every case identify numbers that have been reassigned” and that the steps it was taking “may not solve the problem in its entirety” even “where the caller is taking ongoing steps reasonably designed to discover reassignments and to cease calls.”

The Second NOI

The Second NOI promises to more meaningfully address the reassigned number problem by suggesting the creation of a reliable, complete list of reassigned numbers that service providers would be required to update.  In pertinent part, the Second NOI addresses a number of other topics, including, but not limited to, possible reporting alternatives, compensation schemes, frequency of updates, and fees and eligibility requirements for accessing reassigned number data.  It also asks a number of logistical questions, including, but not limited to:

(1) What are the ways in which voice service providers could report the information in an accurate and timely way?

(2) Would the reporting—into a database or other platform—“substantially improve robocallers’ ability to identify reassigned numbers?”

(3) What information should voice service providers report?

(4) In what ways might the information reported raise concerns regarding the disclosure of private, proprietary, or commercially sensitive information?

(5) Should reassignment of toll-free numbers also be reported?

(6) What is the quantity of numbers reassigned and the benefits of reducing unwanted calls to these numbers?

(7) Should there be a safe harbor from TCPA violations for robocallers who use the new reassigned number resource?  What would be the advantages and disadvantages?

(8) How can the FCC incentivize robocallers to use the reassigned number resource?

In addition, the Second NOI seeks comment on whether the notification requirement should apply to all voice service providers or just providers of wireless services, and how to “balance the reporting burden placed on voice service providers against consumers’ privacy interests and robocallers’ interest in learning of reassignments.”   The item also seeks comment on which entity should be responsible for notification in circumstances when a voice service provider does not receive numbers directly from NANP, but instead obtains numbers “indirectly” from carrier partners.

The Commission claims it has the authority under Sections 227(b) and 251(e) of the Communications Act of 1934, as amended—which give the FCC control over the US portion of NANP and incorporate the TCPA—to require entities that obtain numbers from NANP to also report reassignments.  In fact, the Commission claims that doing so may further the statutory goals underlying the TCPA, which generally prohibits unwanted robocalls.

Although many details remain to be discussed and addressed by the FCC, the creation of the list that the FCC is proposing would address one of the main challenges faced by businesses that want to comply with the TCPA: how to gather reliable and complete information regarding which wireless telephone numbers have been reassigned.  The possibility of such a list working similar to that available to identify telephone numbers in the Do Not Call List is particularly promising, especially if it comes accompanied by safe harbor provisions similar to those attached to the Do Not Call List obligations in the FCC’s rules.   The Squire Patton Boggs TCPA team will continue to monitor these developments.

Comments are due August 28, 2017 and Reply Comments September 26, 2017.

The following attorneys authored this post: Eduardo Guzman, Paul C. Besozzi, and Koyulyn Miller.

[1] For purposes of this post “robocalls” refers to both calls made using an automatic telephone dialing system or using an artificial voice or pre-recorded message.

Trump Administration Releases NAFTA Negotiating Objectives

On July 17, the Trump Administration released its negotiating objectives for the upcoming renegotiation of the North American Free Trade Agreement (NAFTA).  The detailed objectives can be found here, and a press release from the Office of the U.S. Trade Representative can be found here.

Senate Updates the Better Care Reconciliation Act of 2017

On Thursday, July 13, Senate Republicans released their updated draft of the Better Care Reconciliation Act of 2017.  A PDF of the updated text can be accessed here.

We found the following documents and articles helpful:

  • An updated Congressional Research Service Section-by-Section for Titles I and II of the Better Care Reconciliation Act of 2017 (link)
  • A summary of the newly included Title III (link)
  • The Washington Post’s Sean Sullivan, Kelsey Snell, and Juliet Eilperin provide an overview of the revised bill (link)

The Latest on Fintech: Federal and Beyond

As one of the most rapidly growing industries in the financial services sector, financial technology (fintech) is receiving significant attention in the nation’s capital and around the world.

This article analyzes and provides updates on recent key fintech developments at the regulatory level, on Capitol Hill, and in the courts – including a brief update on the international regulation of the fintech industry.  A PDF version of this article can be found here.

OCC

In March of this year, the Office of the Comptroller of the Currency (OCC) released a draft supplement to its licensing manual on the licensing of special purpose fintech banks (analyzed in greater detail here). The OCC provided an opportunity for public comments on the licensing supplement, a move intended to be consistent with the agency’s guiding principles of transparency and fostering open dialogue with stakeholders.

The comment period closed on April 14, and since that time, we understand that the OCC has decided to press “pause” on considering applications for and issuing fintech bank charters for entities that would not be accepting deposits. Though the agency has yet to clarify what its next steps will be regarding issuing fintech bank charters to entities not already eligible for a national bank charter, there are a few critical factors likely to impact how the OCC ultimately decides to proceed.

Leadership Change

Importantly, the OCC is undergoing a change in leadership. Comptroller Curry’s term expired on April 9, 2017, and on May 5, Comptroller Curry stepped down and Keith Noreika was named Acting Comptroller. Acting Comptroller Noreika was previously head of the financial institutions regulatory practice at an international law firm. President Trump has since nominated Joseph Otting – former CEO of One West Bank – to serve as the Comptroller of the Currency. Mr. Otting will need to be confirmed by the Senate before taken the charge of the agency.

Until Mr. Otting takes the helm of the OCC, the fate of the agency’s fintech bank charter proposal lies with Acting Comptroller Noreika. That said, it is notable that neither of the two has yet to opine on the concept. However, the fact that the Acting Comptroller failed to even mention the fintech proposal in either his written or oral testimony during his participation in last week’s Senate Banking Committee hearing on regulatory reform could suggest a shift away from the OCC’s current approach. Nevertheless, there are several possible outcomes under new OCC leadership. The agency could: (1) finalize the licensing supplement on fintech banks with no substantial changes from the draft released in March; (2) finalize the supplement with substantive changes, which would not be subject to public notice and comment; (3) withdraw the draft supplement and not move forward with chartering fintech banks; or (4) hit “pause” and take no action either in finalizing or in withdrawing the draft licensing supplement.

Any concrete shift away from the agency’s current approach (i.e., hitting “pause” or withdrawing the draft manual entirely) likely would be well received by various stakeholders in Washington DC, including House Financial Services Committee Chairman Jeb Hensarling (R-TX). In March of this year, Chairman Hensarling wrote then-Comptroller Curry urging the OCC to not rush its decision and instead “provide a full and fair opportunity for stakeholders” to assess the charter. Relatedly – though for different reasons – Democratic Senators Sherrod Brown (D-OH) and Jeff Merkley (D-OR) also wrote to Curry in January warning that fintech charters could “undermine financial stability and jeopardize consumer protections.”

Note, too, as was highlighted in a recent Senate Banking Committee hearing that examined the Upper Chamber’s approach to financial services regulatory reform, there is concern by some that the OCC’s fintech bank charter proposal could further impede the ability of community banks and credit unions to compete for deposits as they lose locational advantages to mobile banking platforms.

In sum, this bipartisan, bicameral opposition could spell trouble for the OCC’s proposal going forward.

Challenges in Court

It is possible that the future of the OCC’s fintech proposal will be determined by a court. Since the OCC released the draft licensing supplement in March, at least two entities have filed law suits challenging the OCC’s authority to issue fintech bank charters. First, the Conference of State Bank Supervisors (CSBS) is seeking an injunction to prevent the OCC from issuing any fintech bank charters. CSBS argues that the OCC lacks the authority to issue a fintech bank charter and that doing so would violate the National Bank Act (NBA), the Administrative Procedure Act and the Supremacy Clause of the Tenth Amendment of the Constitution. CSBS claims that the OCC can only charter institutions that carry on either (1) the “business of banking” under the NBA, which CSBS contends requires – at a minimum – engaging in receiving deposits; or (2) certain special purposes expressly authorized by Congress. As detailed in the OCC’s licensing supplement, these fintech banks would not receive deposits, nor has Congress expressly authorized their existence. The OCC’s response to CSBS’s complaint is due at the end of July, after having received an extension by the US District Court for the District of Columbia.

Separately, the New York Department of Financial Services (NYDFS) Superintendent Maria Vullo filed a complaint in the Southern District of New York alleging the OCC’s actions to charter fintech banks “grossly exceeds the agency’s statutory authority.” Superintendent Vullo makes similar arguments as CSBS. The OCC’s response will likely be due in July.

These cases are clearly in their early stages, but could easily impact the OCC’s ultimate decision on whether to move forward with the fintech bank charter.

CFTC and Other Regulators

The Commodity Futures Trading Commission (CFTC) recently announced the creation of LabCFTC, a new initiative aimed at promoting responsible fintech in the markets CFTC oversees. LabCFTC will focus on ways to use fintech to improve the quality, resiliency, and competitiveness of the markets. LabCFTC will also focus on the CFTC’s engagement with fintech and regtech solutions that may enable the agency to carry out its mission more effectively and efficiently. Though little information has been released about the program, LabCFTC, which will be located in New York, will have two core components: (1) GuidePoint – a dedicated point of contact for fintech innovators to engage with CFTC; and (2) CFTC 2.0 – an initiative to foster and help initiate the adoption of new technology within the CFTC’s own activities. Note, however, given the current makeup of the CFTC (i.e., there are only two Commissioners – and one, Commissioner Sharon Bowen, is set to resign), we do not anticipate significant developments until CFTC nominees Brian Quintenz and Chris Brummer are confirmed as commissioners.

LabCFTC is just one example of federal regulators’ increasing interest in fintech and its potential impact on the industries they regulate. Indeed, both the Federal Reserve System (Fed) and the Consumer Financial Protection Bureau (CFPB), among other regulators, have shown interest in fintech in recent months. In April of this year, Fed Governor Lael Brainard indicated that the Fed wants to provide input on future rules governing how technology companies move into consumer lending markets. At the CFPB, the agency released a report last year from its “Project Catalyst” on promoting consumer-friendly innovation and highlighting the importance of ensuring consumer protections are built into emerging products and services.

Legislative

Aside from regulatory efforts, lawmakers also have expressed an interest in oversight of the fintech industry. In September 2016, Representative Patrick McHenry (R-NC), Chief Deputy Whip in the House, introduced the Financial Services Innovation Act of 2016 to create a regulatory “sandbox” approach for fintech firms. The sandbox approach, which loosely mirrors a similar program in the UK, allows companies to work alongside a regulator when testing a fintech product or service. The bill intends to give these firms the ability to test a new product or service with a limited launch without going through the full regulatory process. Representative McHenry’s bill also requires the 12 financial federal regulators to develop an internal “Financial Services Innovation Office” where companies can seek help in testing a product or service. While the bill has not been reintroduced at the time of publication, we anticipate that a “2.0” version of the legislation will serve as the starting point for congressional action on fintech legislation this Congress – an effort that we believe may have much-needed support from some in the Senate.

International

As interest in fintech continues to grow in the US, the industry is also drawing attention from governments across the world, especially the European Union (EU). On March 23, 2017, the European Commission (EC) published a new Action Plan on Consumer Financial Services (Action Plan). The Action Plan sets out ways to provide European consumers with greater choice and better access to financial services across the EU. As a complement to the Action Plan, the EC recently launched a public consultation on fintech, looking into technology and its impact on the European financial services sector. The consultation remained open until June 15, 2017. The responses of the public consultation will feed into the work of the EC’s fintech task force. Note, in a March conference, EC Vice-President Valdis Dombrovskis pointed out the need to do more work towards harmonizing the standards of innovation within the fintech space across the EU, which would enable a coherent EU approach to fintech. Nevertheless, as the industry continues to expand, the EC appears to be taking a “wait-and-see” approach to promulgating fintech regulatory measures for the time being.

Additionally, in a recent firm fintech seminar, panelists from various regulators and the financial services industry discussed a number of fintech-related topics. Notably, one panel concurred that competition law provides a flexible and effective tool for fintech companies and that it can be used as a “shield” to disentangle the pro-competitive effects of certain cooperation arrangements (such as information exchanges in blockchain technology) from its potentially anticompetitive effects; or, conversely, can be used as a “sword” in commercial negotiations with more established companies to reduce artificial market barriers. Further discussion centered on the potential impact of Brexit on UK-based fintech companies and the payments industry, which will be significantly impacted given the lack of equivalence rules for third countries in the applicable EU Payment Services and Electronic Money Directives.

Please contact the following individuals regarding this article:

Matthew Cutts
Partner, Washington DC
T +1 202 457 6079
E matthew.cutts@squirepb.com

Jim Sivon
Of Counsel, Washington DC
T +1 202 262 4271
E james.sivon@squirepb.com

Katie Wechsler
Of Counsel, Washington DC
T +1 202 360 8895
E katie.wechsler@squirepb.com

Brandon Roman
Associate, Washington DC
T +1 202 457 5330
E brandon.roman@squirepb.com

Patrick Kirby
Associate, Washington DC
T +1 202 457 5294
E patrick.kirby@squirepb.com

Senate Republicans Release Better Care Reconciliation Act of 2017

On Thursday, June 22, Senate Republicans released the text of their health reform discussion draft.  A PDF of the text can be accessed here.

We found the following documents and articles to be particularly useful:

  • The Congressional Research Service Section-by-Section Summary of the Better Care Reconciliation Act of 2017 (link)
  • The Washington Post’s Kim Soffen and Darla Cameron explain the Senate draft (link)
  • The Atlantic’s Vann R. Newkirk II discusses the Medicaid policy changes (link)

Senate Continues Work on Iran and Russia Sanctions

Senate Legislative Activity

The Senate will convene on Monday, June 12 at 4:00 pm.  Following any Leader remarks, the Senate will be in a period of morning business until 5:00 pm.

At 5:00 pm, the Senate will proceed to Executive Session to consider the nomination of Kenneth P. Rapuano, of Virginia, to be Assistant Secretary of Defense. There will be up to 30 minutes for debate prior to a roll call vote on confirmation of the nomination. Following disposition of the nomination, the Senate will resume consideration of the motion to proceed to S.722, Iran Sanctions, with all post-cloture time considered expired.

There will be at least one roll call vote at 5:30 pm with the potential of a second.

House Legislative Activity

On Monday, the House will meet at 12:00 p.m. for morning hour and 2:00 pm for legislative business. Votes will be postponed until 6:30 pm.

The following legislation will be considered under suspense on of the rules:

  1. H.R. 338 – To promote a 21st century energy and manufacturing workforce (Sponsored by Rep. Bobby Rush / Energy and Commerce Committee)
  2. H.R. 446 – To extend the deadline for commencement of construction of a hydroelectric project (Sponsored by Rep. Morgan Griffith / Energy and Commerce Committee)
  3. H.R. 447 – To extend the deadline for commencement of construction of a hydroelectric project (Sponsored by Rep. Morgan Griffith / Energy and Commerce Committee)
  4. H.R. 627 – Streamlining Energy Efficiency for Schools Act of 2017 (Sponsored by Rep. Matt Cartwright / Energy and Commerce Committee)
  5. H.R. 951 – To extend the deadline for commencement of construction of a hydroelectric project (Sponsored by Rep. Virginia Foxx / Energy and Commerce Committee)
  6. H.R. 1109 – To amend section 203 of the Federal Power Act (Sponsored by Rep. Tim Walberg / Energy and Commerce Committee)
  7. H.R. 2122 – To extend the deadline for commencement of construction of a hydroelectric project involving Jennings Randolph Dam (Sponsored by Rep. David McKinley / Energy and Commerce Committee)
  8. H.R. 2274 – HYPE Act (Sponsored by Rep. Scott Peters / Energy and Commerce Committee)
  9. H.R. 2292 – To extend a project of the Federal Energy Regulatory Commission involving the Cannonsville Dam (Sponsored by Rep. John Faso / Energy and Commerce Committee)
  10. H.R. 2457 – J. Bennett Johnston Waterway Hydropower Extension Act of 2017 (Sponsored by Rep. Mike Johnson / Energy and Commerce Committee)

On Tuesday, the House will meet at 10:00 am for morning hour and 12:00 pm for legislative business.

H.R. 2581 – Verify First Act (Subject to a Rule) (Sponsored by Rep. Lou Barletta / Ways and Means Committee)

H.R. 1094– Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017 (Subject to a Rule) (Sponsored by Sen. Marco Rubio / Veterans Affairs Committee)

On Wednesday, the House will meet at 10:00 am for morning hour and 12:00 pm for legislative business.

H.R. 2372 – VETERAN Act (Subject to a Rule) (Sponsored by Rep. Sam Johnson / Ways and Means Committee)

On Thursday, the House will meet at 10:00 am for morning hour and 12:00 pm for legislative business.

H.R. 1215 – Protecting Access to Care Act of 2017, Rules Committee Print (Subject to a Rule) (Sponsored by Rep. Steve King / Judiciary Committee)

On Friday, the House will meet at 9:00 am for legislative business. Last votes expected no later than 3:00 pm.

H.R. 2579 – Broader Options for Americans Act (Subject to a Rule) (Sponsored by Rep. Pat Tiberi / Ways and Means Committee)

Sources:  www.democrats.senate.govhttp://www.majorityleader.gov/

State Attorneys General June 12 Update

Squire Patton Boggs’ State Attorneys General Practice Group is comprised of lawyers who have served at senior levels in state AG offices around the country and whose practices focus, to one degree or another, on representing clients before these increasingly assertive and powerful, yet often overlooked, government agencies, as explained in detail here.

In these updates, we will call attention to the most noteworthy state AG news or developments emerging in the previous week.

Advocacy

Massachusetts AG Maura Healey and 32 State AGs have joined together to oppose President Trump’s proposal to eliminate federal funding for the Legal Services Corporation (LSC). The coalition of AGs drafted a letter to Congress extolling the role of LSC in “help[ing] residents nationwide receive justice.”

Virginia AG Mark Herring and a coalition of 20 other AGs in a joint letter are urging House leadership to reject “anti-consumer legislation that would roll back many of the critical protections adopted in the wake of the financial crises that harmed so many hard-working Americans.” Their principal objective is defunding the Consumer Financial Protection Bureau (CFPB).

Regulatory

Texas AG Ken Paxton and 16 fellow AGs are calling for regulatory reform to protect citizens and businesses from what they see as federal government overreach. In a letter, the AGs encouraged the president to push Congress to limit the enforcement authority of federal agencies.

LexBlog