kane davis cooper kdcltd.com

Tax war looming

Kane Davis Cooper kdcltd.com | Tensions are rising over the massive US tax reform about to be put in process. Not only is criticism coming from stateside but also from farther ashore.

The overhaul, designed to make the US a more attractive place to do business will see US corporation tax slashed and affects the treatment of international companies and exporters, diminishing loopholes that are currently being used to hide profits overseas.

Some of the new measures are thought to be in violation of international agreements and treaties and may lead to retaliatory actions by other countries, with ministers from the EU already voicing their concerns.

One measure that other countries could take would be to reduce their own tax and possibly review their rules for international trading. It is expected that it will take a full twelve months for the effects of the changes to be fully understood.

One part of the plan is the US will end its taxation of overseas profits for US companies, as already happens with other countries, and change the rules around claiming business expenses. All the measures collectively proposed will cost the US almost one and a half trillion dollars over the next decade, further increasing their already twenty plus trillion national debt.

To somewhat balance some of the cost, the US will take a one-off charge on overseas profits of 15.5% for cash and 8% for other assets.

The changes permit American companies to make a tax deduction for profits generated by exports, which in reality will see the tax rate on exports fall to around thirteen percent.

This is one of the measures that will probably be legally challenged as being in contravention of World Trade Organization (WTO) rules and constitutes an illegal subsidy.

The tax plan also raises the tax cost of US subsidiaries that make disbursements to overseas companies and is concerning for many countries that trade with the US, especially Germany.