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US tax reform – an update

US tax reform – an update

The Trump administration predicts passage of the tax reform Bill by the end of 2017 after Republicans reach agreement on proposals


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US federal tax reform (i.e., the Tax Cuts and Jobs Act) seems to be on the cusp of enactment. On 13 December 2017 the House and Senate reached agreement on their respective tax bills, reportedly settling on a reduced rate of corporation tax of 21 percent. Work will now take place on the final text of the unified Bill which will be voted on by the full House and Senate. Assuming it passes, it will then be signed into law by President Trump, whose administration is confident that the Bill will pass by the end of 2017 – although at the time of writing, some media commentators are reporting that this may be in doubt. We will be holding a webinar on the latest developments at lunchtime on Wednesday 20 December and an invitation will be sent to all Tax Matters Digest recipients.

For UK multinational entities (MNEs), there are some key impacts that are expected to result from the passage of the US tax reform Bill:

  • The Bill proposes a lowering of the corporate tax rate to 21 percent (from 35 percent). The positive impact of this on a profitable group’s effective tax rate (ETR) may be countered in part by other measures in the reform, such as the proposed restrictions on interest deductibility and loss restrictions;
  • For deferred tax purposes, MNEs should be considering how deferred tax assets/liabilities are recognised in their financial statements. If the Bill passes in 2017, as is currently expected by the Trump Administration, groups with a December year end will need to disclose and provide accordingly;
  • The Bill’s mandatory repatriation tax on (previously) deferred overseas earnings is intended to encourage US MNEs to repatriate cash instead of keeping it offshore. The ripple effect of this measure may cause significant change to the way in which affected groups structure their finance, and where and how they choose to invest surplus cash. This is particularly likely to influence the M&A landscape (both in terms of the types of deals that happen, and how they are financed); and
  • The proposed new ‘excise tax’ on certain deductible payments made by US companies to their non-US affiliates may have a material negative impact on the competitiveness of multinationals with cross-border supply chains involving intra-group transactions. Groups in this category will suffer higher taxes than those US groups which are either wholly domestic, or who import from third parties. This could clearly have a major impact on global supply chains for any multinationals with significant US activity and may lead to groups restructuring their operating models to minimise the impact and tax cost.

On this side of the Atlantic, finance ministers from France, Germany, Italy, Spain, and the UK have written to US Treasury Secretary Steven Mnuchin expressing concerns about some of the tax reform proposals. The letter highlighted European concerns that some of the international tax provisions could contravene the US’s double taxation treaties and risk a distortive effect on international trade.

As mentioned above, we will be holding the third in our series of webinars on this topic at lunchtime on Wednesday 20 December. You can listen to the second webinar in our US Tax Reform series, held on 5 December, here and view the slides here. The first webinar, held on 14 November, can be listened to here and the slides can be viewed here.

You can also keep up to date on the progress of US tax reform on KPMG in the US’s dedicated site. .

If you have any questions about US tax reform and what it could mean for your business, please get in touch with your usual KPMG contact or with one of the named contacts below.

For further information please contact:

Melissa Geiger

Fred Gander

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