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Donald Trump is
a new entry this year
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President-elect Donald Trump sits high on the Global Tax 50
list after winning November's seismic US election, which means
that the Republican Party holds the House of Representatives,
the Senate, the executive Court and the Supreme Court. A clean
sweep.
This leaves Trump with carte blanche to make
changes as he sees fit, with the only meaningful opposition to
come from within the Republican Party.
As unpredictable as Trump is, his party has always strived
for low taxes for businesses and individuals. With tax reform
in the US long overdue – and a significant subject of
debate during the election campaign – it would take a
series of events even more unlikely than his election for the
corporate tax rate not to fall.
Trump's pre-election plan was to slash the rate from 35% to
15% and allow for a one-time repatriation of offshore corporate
profits at a rate of 10%. He also promised to abolish the
corporate alternative minimum tax.
"This [15%] rate is available to all businesses, both big
and small, that want to retain the profits within the
business," Trump said in his pre-election tax reform plan,
published on September 14.
US businesses are hampered by high corporate tax rates to
the extent that corporate inversions and the stockpiling of
profits offshore have both become big issues. The rate cut is
not a sure-fire remedy to these problems but will at least
prevent them from getting worse. If the offshore profits
amnesty does not yield significant revenue, however, the US
will be in serious trouble revenue-wise.
If Trump manages to get his plan through Congress, the Tax
Foundation expects it to result in a loss of tax revenue in the
range of between $2.6 trillion and $3.9 trillion over the next
10 years. That does not leave much for building walls.
The rate cut, therefore, is likely to be tempered by the
House Republicans, who have previously said that they favour a
rate of 20%. International Tax Review understands,
however, that there is a good chance the rate will be higher
still – somewhere between 22% and 25% looks most
likely, according to a source close to the Trump
administration.
Section 385 regulations
In further positive news for taxpayers, Trump's elections
could also see the end of burdensome section 385 regulations.
The regulations, which affect the tax treatment of corporate
debt, have been causing a major headache for inbound US
organisations.
"Why we think 385 is likely to go away is that [Trump] wants
to make sure the US tax landscape is competitive," said Michael
Crafton, senior director at Alvarez & Marsal in New York.
"With respect to 385, it really attempted to attack these US
companies that were out-bounding to non-US countries, but was
attacking, essentially, all non-US-parented multinational
companies."
However, in a series of tweets, Trump promised to penalise
any businesses that move operations offshore. "The US is going
to substantially reduce taxes and regulations on businesses,
but any business that leaves our country for another country,
fires its employees, builds a new factory or plant in the other
country, and then thinks it will sell its product back into the
US without retribution or consequence, is WRONG! There will be
a tax on our soon to be strong border of 35% for these
companies wanting to sell their product, cars, AC units, etc.,
back across the border. This tax will make leaving financially
difficult, but these companies are able to move between all 50
states, with no tax or tariff being charged. Please be
forewarned prior to making a very expensive mistake! The United
States is open for business," he said.
While reversing the 385 regulations may take some time, a
cut in the corporate tax rate, coupled with a tax holiday for
earnings repatriated to the US, could well be Trump's first
major piece of policymaking during his term after his
inauguration on January 20.