Don Lonczak, Washington D.C. based Partner
“International tax reform by a Trump administration seemingly would include a move from a worldwide taxation regime to a territorial tax regime for corporate profits.”
“Such a move would put the United States on solid footing with other major nations with respect to cross-border tax policy. Noticeably absent from GOP think pieces, however, is a solution to the significant "barriers to exit" that have been adopted over the years by legislation and regulation and, more recently, informal IRS action. Without assurances as to ability to move assets or operations outside the United States without a substantial tax cost, companies may remain hesitant to embrace U.S.-based structures, even if the tax reform proposals are enacted. The change in law risk simply may be too great."
“In considering international tax reform under a Trump administration, perhaps the single most intriguing question is whether consideration would be given to the "destination based tax system" put forth by the GOP this past June. Under this system, broadly speaking, the United States would seek to tax all sales income derived from U.S. customers, and similarly to exempt all sales income attributable to foreign customers, regardless of whether the selling company is U.S. or foreign.”
“This system would be intended to combat perceived inequities created by the consumption-based VAT system that dominates other countries, and could allow U.S. multinationals to stop worrying about incredibly complex requirements under our CFC and transfer pricing rules. On the other hand, this new tax system would represent a radical change in our U.S. tax model that impacts relations with our foreign trade partners.”
Derek Green, Firmwide Deputy Tax Department Chair and Houston based Partner
“To curb the exodus of U.S. companies to more moderate taxing jurisdictions over the past several years (so called “inversions”), Treasury and the IRS have advanced various regulations designed to make it harder to invert and to deprive inverted companies of the tax benefits perceived to be motivating their inversions.”
“The election of a Republican president and a Republican controlled congress may serve as a turning point in how the United States government addresses the inversion phenomenon. Instead of restrictions and limitations, we may see reduced corporate tax rates and possibly a territorial tax system that will put U.S. companies on par, tax-wise, with their foreign competitors.”
Jeff Munk, Washington D.C. based Partner
“Plans for international tax reform will also have to be tied to any benefits such reform provides locally. One way Congress could do that is to follow the Blueprint’s call for taxing foreign profits now, whether or not they are repatriated back to the United States.”
# # #About Baker Botts LLP
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