TAX IMPLICATIONS IN A
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The US is set to cut its corporate taxation rate from
35% — which represents one of the highest tax
rates in the world — to just 15%.The move, which
was announced by the newly appointed Treasury
Secretary, Steven Mnuchin, is designed to bring the
US in-line with similar European tax rates.1
Europe: a tax haven?
Companies can declare their base of permanent
establishment (PE) in one country, while offsetting
their taxes in another.With Ireland’s corporate Tax
rate at 12.5%, and others such as Switzerland and
Guernsey, Europe has, for all intents and purposes,
becomes home to many US multinationals.But with
the US proposing a lower rate of tax, America will
become a more competitive player in the market.
Trump’s “America First” economic plan hinges on
US businesses migrating their tax centers ‘back
It is currently estimated that US multinationals have
$1.4 trillion (USD) in offshore accounts.As a result
of a more lenient tax system, this collateral could
potentially be repatriated into the US economy.
Border tax and the issue ofVAT
A ‘border adjusted provision’ has also been
proposed.The tax imports at 20% in the US and
exclude exports from taxation via rebates. 2
has specifically targeted companies such as German
carmaker BMW,which intends to open a new plant
in Mexico and then import to the US, suggesting it
will be taxed at the full rate of 35% unless it moves
production onto US soil. 3
As it stands, the US does not have a Value-Added
Tax (VAT) system, and it has been suggested that it
could establish aVAT system at firm level based on
the subtraction method. This would be disruptive
across all sectors, with border adjustment in
particular proving problematic. Despite the
potential issues, it is thought that this tactic could
pay off for the country’s GPD in the long-term. 4
The complexities of tax reform
On the surface,lowering taxation in the US suggests
one key outcome: companies that relocate will
receive a near-immediate windfall. However, the
issue is far more complex.The same laws that
govern the mechanics of taxation internationally
and allow companies to use offshore facilities,could
also be prohibitive when it comes to bringing their
tax-homes back to the US.
A company that attempts this move could face tax
avoidance charges for previous returns. If they are
perceived to be manipulating the system the‘global
tax powers’ could demand tax retrospectively.
Companies need to work carefully to manage their
expectations and asses the ramifications in order to
ascertain the true cost of taking advantage of the
US’s new taxation plan.
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The Butterfly Effect
In Edward Lorenz’s butterfly effect theorem, the
flap of a butterfly’s wings in Brazil could have the
power to set off a tornado in Texas. Similarly, in
our hyper-connected world small actions can have
The US political climate is unstable, and in a
landscape where a 140-character tweet by an
influencer or politician has the potential power to
make a significant impact on global affairs, it is likely
to remain that way.
For example, a recent press conference which
saw Trump single out pharmaceutical companies’
tax affairs, led to the big players in this industry
losing $24.6 billion from their stock prices in just
20 minutes. With this in mind, relocating to the US
could potentially be very damaging for a company’s
stock price, and this may be a risk companies aren’t
willing to take.
The implications for Europe
In states where borders are closing and tariffs are
increasing, we could see a more isolationist model
beginning to form. Rather than companies moving
back to the US, it’s possible these changes will
cement many companies in their European bases,
as this poses a lesser risk.
Taking into accountTrump’s recent withdrawal from
the Trans-Pacific Partnership and the possibility of
pulling out of the free-trade agreement,it’s likely the
European market will begin to grow independently.
This will be particularly poignant in areas such as
automotive and pharmaceuticals where much of
the market is already based within Europe.
Ultimately, the political and tax landscape are
currently undergoing complex changes, and it’s
difficult to predict exactly how these factors will
merge together to create results. Whatever the
outcome, at DSJ Global, we have our fingers on
the pulse of the industry and are well equipped to
meet its changing recruitment needs.
This guide has been brought to you
by DSJ Global, part of the Phaidon
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