Global Tax 50 2016: Donald Trump

Donald Trump is a new entry this year

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.

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.