The Global Business Alliance advocates to maintain the OECD international standard allowing for depreciation and amortization to be maintained as part of the EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) formula used by companies to obtain critical financing necessary to rebuild their supply chains here in the United States post COVID-19.
Due to the Tax Cuts and Jobs Act (TCJA), changes to the Section 163(j) calculation have been made to how a company deducts its interest expense. The calculation changed from an EBITDA standard to an EBIT standard.
The new current EBIT-based computation of Section 163(j) interest expense limitation reduces the Adjusted Taxable Income base by depreciation and amortization (the DA portion) and results in less deductible interest expense, leading to less investment.
This use of EBIT has nothing to do with a company’s ability to borrow, is out of step with the OECD and countries competing with the U.S. for investment and is contrary to normal business practices.
Representatives Joe Morelle (D-NY), Adrian Smith (R-NE) and Roy Blunt (R-MO) introduced a bipartisan bill in the 117th Congress. Permanently Preserving America’s Investment in Manufacturing Act (HR. 5371/S. 1077) would restore depreciation and amortization to recreate the EBITDA formula. Restoring depreciation and amortization to the OECD recommended EBITDA standard used to calculate the Section 163(j) limitation can help encourage continued investments towards rebuilding U.S. supply chains.