The United States Government adopted an important tax reform bill – the “tax cuts and jobs acts” – in December 2017. Although many details are still being worked out and it will be some time before firms have assessed all the implications, the bill includes changes to the corporate tax regime that are likely to have important consequences for international investment. These changes will affect both cross-border investment into the United States and the investment positions of the United States MNEs abroad. As such, they could have a significant impact on global investment patters, given that almost half of global investment stock is either located in the United States or owned by United States multinationals (MNEs).
Key objectives of the reforms are to boost investment in the United States and to create jobs. To that
end, the bill contains measures that directly affect the investment climate in the United States, and
measures aimed at MNEs to encourage them to bring overseas funds back home and to reduce the
incentive for them to locate certain assets and activities abroad. The package also contains measures to
tackle tax avoidance through complex cross-border corporate structures.
Measures that will directly affect the investment climate in the United States include:
(i) A reduction of the statutory corporate income tax (CIT) rate from 35% to 21% effective from 2018.
(ii) Immediate full expensing of investment cost.
(iii) The capping of deductible interest to 30% of taxable income.
Measures directed at the international tax regime for MNEs include:
(iv) A switch to a territorial tax system through a 100% deductibility of dividends of foreign affiliates.
(v) A transitional measure for existing overseas retained earnings in the form of a mandatory deemed
repatriation subject to a one-off tax payment (15.5% on cash, 8% on illiquid assets).
(vi) A set of anti-avoidance measures, including a tax on global intangible low-tax income and a tax on
payments to overseas affiliated firms that erode the tax base in the United States.
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The report was originally posted here.