The chances of US tax reform under a Trump presidency are high, with the main rate of corporation tax likely to fall significantly, perhaps to around 20 per cent, according to Pam Olson, a senior tax adviser with PwC and a former senior US government official. This will be part of a major shake up of the US system of taking companies.
“It looks like the prospects for tax reform under a Trump presidency are higher than they have been in a long time,” according to Ms Olson, deputy tax leader for PwC in the US, with reductions in statutory rates for individuals and businesses.
Tax summit in Dublin
During his presidential campaign, Donald Trump had promised to reduce the main corporation tax rate from 35 per cent to 15 per cent. Reducing the rate as far as 15 per cent could be difficult, Ms Olson said, given the impact on revenue and 20 per cent might be a more realistic figure, following negotiations with Congress and in line with a plan drawn up by House Republicans.
Tax reform plans had been on ice for years, Ms Olson said, and this looked set to continue if Hillary Clinton had become president, as she would have been likely to have continued the Obama presidency opposition to cuts in the top tax rate for individuals, as favoured by Republicans.
However now tax reform is likely to be one of the first items on the political agenda, said Ms Olson, who will be one of the keynote speakers at the Irish Times Corporate Tax Summit, being held on Tuesday, January 24th, in Dublin.
Part of the new corporate tax regime to be negotiated with Congress will be a proposed special incentive programme for companies to permit cash held offshore to come back to the US.
The Trump campaign promised a once-off rate of 10 per cent to apply to the hundreds of billions of dollars held offshore by US companies when repatriated – at the moment US companies can generally avoid paying corporation tax on profits earned offshore, once the cash is not returned to the US.
Apple decision
There is likely to be a mandatory element for companies to avail of this, according to Ms Olson, where they will have to pay tax on all prior foreign profits, including those reinvested in hard assets. The US is also likely to signal a change from its current territorial system of tax, which involves taxing income from a source within the country and is unusual internationally.
There is a growing realisation that this the “worst of all possible worlds” for the US, says Olson, and the tax reform programme is likely to trigger “a transition to a new system”.
” I don’t think it will affect companies’ need to invest abroad,” Ms Olson said. They will continue to do so to serve overseas markets and customers.
“Ireland will remain attractive for US companies establishing a base outside the US – it does not diminish that. It will affect company planning, however, particularly for companies serving the US market.”
She was also highly critical of the European Commission decision in relation to Apple’s tax obligations in Ireland.
“ The European Commission is trying to create a new standard for international tax. It is not consistent with international tax rules as we know them and not consistent with the OECD Beps process. “
She added that she hoped that, when they heard the legal challenges from Ireland and Apple, the European courts would not look favourably on the decision. “It represents a complete disruption of the international tax regime and existing agreements on how to allocate income across international boundaries.”
The Irish Times Tax Summit is on Tuesday, January 24th
