Turning to Tax Reform: Will US and Multinational Businesses Be Dealt a Good Hand When the Trump Card is Played? May 4, 2017

Transcription

1 Turning to Tax Reform: Will US and Multinational Businesses Be Dealt a Good Hand When the Trump Card is Played? May 4, 2017

2 Agenda Opening Remarks Linda Pfatteicher, San Francisco Bernhard Gilbey, London US Tax Reform: Where Are We, How Did We Get Here, and Where Are We Going? Senator John Breaux, Washington DC Senator Trent Lott, Washington DC Practical Issues: How Will This Impact Businesses Around the World? Matthew Cutts, Washington DC Mitch Thompson, Cleveland Questions and Comments 2

3 US Tax Reform: Where Are We, How Did We Get Here, and Where Are We Going? Senator John Breaux, Washington DC Senator Trent Lott, Washington DC 3

4 Practical Issues: How Will This Impact Businesses Around the World? Matthew Cutts, Washington DC Mitch Thompson, Cleveland 4

5 Lower Corporate Tax Rates Trump Outline Lowers the corporate rate from 35% to 15% 15% rate for pass-through business income Somewhat higher rates for individuals House Blueprint Lowers the corporate rate from 35% to 20% 25% rate for pass-through business income Somewhat higher rates for individuals Questions Raised If the corporate rate is lowered enough, does this make the US an attractive holding company location? Maybe even a tax haven? Does this make deferral structures and inversions less attractive/necessary? Are tax credits and other incentives on chopping block? 5

6 Shift to Territorial Tax System Territorial system generally ends U.S. taxation on non-u.s. income of U.S.-based multinational businesses A territorial system of taxation is aimed at simplifying the corporate tax compliance burden and reducing the potential for controversial profit shifting measures Could this lure back those U.S. multinationals who have left? IP and base erosion concerns 6

7 How Do We Pay For The Lower Taxes? Repatriation of Foreign Earnings Interest Deductibility and Other Expenditures Border Adjustable Tax 7

8 Repatriation of Foreign Earnings Blueprint proposes: 8.75% tax on accumulated foreign earnings held in cash or cash equivalents 3.5% tax on all other accumulated foreign earnings Companies would be able to pay the repatriation tax over an eight-year period Trump Outline proposes one time tax on earnings (no details provided) Not clear if this will be elective; Also, non-liquid offshore assets present issues 8

9 Interest Deductibility and Other Expenditures Blueprint proposes to eliminate the net corporate interest deduction in favor of full expensing (rather than amortizing or depreciating purchased items over a period of time) Integral part of moving to a cash flow tax system but could be done as standalone This could have the effect of reducing the amount of US financing, although it is intended to encourage purchase of new equipment in the US This could also incentivize repatriation of offshore earnings to reduce the amount of US financing necessary 9

10 Border Adjustable Tax Blueprint proposes to effectively tax imports while exempting exports Trump has said he is generally not supportive of BAT and no mention of it in his outline Supply chains may be impacted for companies who import any goods to the US even if those imports are used in the production of US manufactured goods Companies with inputs that aren t available in the US may suffer, while companies with inputs that are only available in the US may benefit Non-US companies who sell into the US may consider acquisition targets who could give them a US manufacturing base from which to make products wishful thinking? If the value of the dollar appreciates as a result of BAT, investors who hold dollardenominated assets and those who hold assets denominated in other currencies could be impacted 10

11 What if There Are No Pay-Fors? Cost Estimates Trump Outline - $7.2T over 10 years House Blueprint - $3.1T over 10 years Offset by economic growth? Byrd Rule Allows Senators to block proposed legislation if it would cause increase to the federal deficit beyond 10 years Key reason why the Bush tax cuts were set to expire after 10 years Trump proposals would extend beyond 10 years due to corporate rate cuts As a result, some suggest a three year window for the cuts as the subsequent effect could be limited to 10 years (but even this is questionable) This could limit benefits of rate cuts if companies are wary to take advantage of a temporary lower tax rate Could also result in more global uncertainty as companies try to plan in an ever changing environment 11

12 Questions and Comments 12

13 Matthew Cutts, Washington, DC Head of Global Tax Policy E: T: Bernhard Gilbey, London Tax Practice Group Leader Global E: T: Linda Pfatteicher, San Francisco Office Managing Partner San Francisco and Palo Alto E: T: Mitch Thompson, Cleveland Tax Practice Group Leader Americas E: T: