PRINTER'S NO. 3338
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2422
Session of
2024
INTRODUCED BY DUNBAR, PISCIOTTANO, GREINER, SANCHEZ, JOZWIAK AND
KUZMA, JUNE 20, 2024
REFERRED TO COMMITTEE ON FINANCE, JUNE 20, 2024
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in corporate net income tax, further providing
for definitions.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 401(3)1(t) of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
to read:
Section 401. Definitions.--The following words, terms, and
phrases, when used in this article, shall have the meaning
ascribed to them in this section, except where the context
clearly indicates a different meaning:
* * *
(3) "Taxable income." 1. * * *
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(t) (1) Except as provided in paragraph (2), (3) or (4) for
taxable years beginning after December 31, 2014, and in addition
to any authority the department has on the effective date of
this paragraph to deny a deduction related to a fraudulent or
sham transaction, no deduction shall be allowed for an
intangible expense or cost, or an interest expense or cost,
paid, accrued or incurred directly or indirectly in connection
with one or more transactions with an affiliated entity. [In
calculating taxable income under this paragraph, when the
taxpayer is engaged in one or more transactions with an
affiliated entity that was subject to tax in this Commonwealth
or another state or possession of the United States on a tax
base that included the intangible expense or cost, or the
interest expense or cost, paid, accrued or incurred by the
taxpayer, the taxpayer shall receive a credit against tax due in
this Commonwealth in an amount equal to the apportionment factor
of the taxpayer in this Commonwealth multiplied by the greater
of the following:
(A) the tax liability of the affiliated entity with respect
to the portion of its income representing the intangible expense
or cost, or the interest expense or cost, paid, accrued or
incurred by the taxpayer; or
(B) the tax liability that would have been paid by the
affiliated entity under subparagraph (A) if that tax liability
had not been offset by a credit.
The credit issued under this paragraph shall not exceed the
taxpayer's liability in this Commonwealth attributable to the
net income taxed as a result of the adjustment required by this
paragraph.]
(2) The adjustment required by paragraph (1) shall not apply
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to a transaction that did not have as the principal purpose the
avoidance of tax due under this article and was done at arm's
length rates and terms.
(3) The adjustment required by paragraph (1) shall not apply
to a transaction between a taxpayer and an affiliated entity
domiciled in a foreign nation which has in force a comprehensive
income tax treaty with the United States providing for the
allocation of all categories of income subject to taxation, or
the withholding of tax, on royalties, licenses, fees and
interest for the prevention of double taxation of the respective
nations' residents and the sharing of information.
(4) The adjustment required by paragraph (1) shall not apply
to a transaction where an affiliated entity directly or
indirectly paid, accrued or incurred a payment to a person who
is not an affiliated entity, if the payment is paid, accrued or
incurred on the intangible expense or cost, or interest expense
or cost, and is equal to or less than the taxpayer's
proportional share of the transaction. The taxpayer's
proportional share shall be based on relative sales, assets,
liabilities or another reasonable method.
(5) If an affiliated entity is subject to tax under this
article on a tax base that includes the intangible expense or
cost, or the interest expense or cost, paid, accrued or incurred
by the taxpayer, the taxpayer may annually elect to either:
(A) reduce the adjustment required by paragraphs (1), (2),
(3) and (4) to the extent the affiliated entity includes in the
entity's tax base the intangible expense or cost, or the
interest expense or cost, paid, accrued or incurred by the
taxpayer as follows:
(i) Divide the tax computed under this article for the
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affiliated entity related to the intangible expense or cost, or
the interest expense or cost, paid, accrued or incurred by the
taxpayer; by the tax rate; and the apportionment factor of the
taxpayer used to calculate such tax.
(ii) In no case shall the reduction exceed the adjustment
required by paragraph (1), (2), (3) or (4); or
(B) apply the adjustment required by paragraph (1), (2), (3)
or (4) and the affiliated entity shall exclude the intangible
expense or cost, or the interest expense or cost, paid, accrued
or incurred by the taxpayer from the entity's tax base as
follows:
(i) Divide the tax computed under this article for the
taxpayer, including the adjustment required by paragraphs (1),
(2), (3) and (4); by the tax rate; and apportionment factor used
by the affiliated entity to calculate such tax.
(ii) In no case shall the exclusion exceed the intangible
expense or cost, or the interest expense or cost, paid, accrued
or incurred by the taxpayer.
(6) The election under paragraph (5) shall be made by the
taxpayer with the filing of a return and the consistent
application of this election on the return of the affiliated
entity for the same tax year. The taxpayer shall identify the
name and Federal EIN of the affiliated entity to which the
election applies. The affiliated entity shall identify the name
and Federal EIN of the taxpayer to which the election applies.
Nothing in this paragraph shall otherwise impact nexus or
apportionment of the taxpayer or affiliated entity.
* * *
Section 2. This act shall apply to taxable years beginning
after December 31, 2022.
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Section 3. This act shall take effect immediately.
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