The brave new world of US tax
At Taxand’s 2017 Global Conference in Frankfurt, a panel discussed the potential game-changing US corporate tax reform. The panel involved Jill Harding (Taxand USA), Albert Ligouri (Taxand USA) and Shane Wallace (Taxand Ireland).
Not since the Reagan era have we seen any meaningful attempt at corporate tax reform in the US. However, in Trump, the US now has a pro-business President with hugely ambitious plans for unprecedented changes which will have implications for multinationals both in the US and overseas. Still, there are significant missing pieces in the puzzle and unification of Republican controlled Senate will be essential if any significant tax reform is to be achievable for President Trump.
The Republican control of both houses of congress as well as the White House that resulted from the elections of last November gives the allusion of an alignment of the legislative stars, although it does provide Republicans with a very real opportunity to push through reform, albeit in a tight timescale.
It is a critical time-period for Republicans to capitalise on their opportunity. The mid-term elections in November 2018 could mean the Republican control of Congress could shift and the wheels of the cart could come off in pushing through tax reform.
History tells us though that tax reform is achievable in this window, with the last significant reform in 1986 moving from bill to signed law in under a year. If both the house and senate come on side, it is possible for tax reform to be signed into law by the end of this calendar year and come into effect in January 2018.
Currently there are different proposals for tax reform floating around in congress, many of which are controversial on the world stage. The two serious contenders are the Trump Administration’s proposal and the Republican Blueprint, the latter of which has a much greater level of detail than Trump’s current ‘one pager’. But both proposals are consistent in three main aims. Firstly, seeking to aggressively lower corporate tax rates; secondly, requiring repatriation of historic offshore earnings (cash and non-cash) and, finally, in the future, seeking to move the US to a territorial tax system.
Cost of implementation is the most notable difference in the plans – with the Republican Blueprint forecast to raise revenue by $1 trillion versus Trump’s which is estimated to come at a cost, of an eye watering $2 trillion over a period of ten years (although some analysts indicate it would in fact be much more expensive, as high as $5 trillion). Questions are therefore arising about how Trump’s proposal will create value in the US. While Trump argues it will be paid for by the economic stimulus that will come following reform, current projections of growth indicate that there would be a huge economic mountain to climb. On the other hand, the Blueprint is forecast to be revenue positive, but only because it includes the highly controversial Boarder Adjustment Tax which would result in significant winners and losers amongst importers and exporters, further complicating the political process.
For now, as we await the draft proposals, US multinationals need to consider how they could be impacted, and consider potential planning options to address tax reform. There is much horse-trading to play out, but if the stars align, reforms will come into effect in 2018 and corporates therefore need to have in place a variety of plans for whatever the eventuality is.
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Companies need to wait and see how the US tax debate evolves however we are talking about a very short timeframe. There is much horse-trading to play out, but if the stars align, reforms will come into effect in 2018 and corporates therefore need to have in place a variety of plans for whatever the eventuality is.