doing business abroad PDF
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DOING BUSINESS ABROAD CPAs & ADVISORS USA experience clarity // U.S. TAX REFORM PROPOSALS Presented by: Robert J. Wagner, II, CPA 15-16 Giugno 2017 Managing Partner, National Tax Services | BKD, LLP International Tax | SALT | Cost Segregation | R&D Tax Credit Services CPAs & ADVISORS experience clarity // U.S. TAX REFORM PROPOSALS Presented by: Robert J. Wagner, II, CPA Managing Partner, National Tax Services | BKD, LLP International Tax | SALT | Cost Segregation | R&D Tax Credit Services Destination-Based Cash-Flow Tax Proposal 2// AGENDA I. Proposal II. What is a Destination-Based Cash-Flow Tax (DBCFT) System with a Border Adjustment Tax (BAT)? III. Economic Considerations IV. Legal & Practical Considerations V. Transfer Pricing Considerations VI. Where Are We Headed? VII. President Trump’s Tax Reform Vision 3// HOUSE REPUBLICAN PROPOSAL Blueprint for tax reform: “A Better Way: Our Vision for a Confident America” (Proposal) Released in June 2016 Promotes a new “Destination-Based Cash-Flow Tax” (DBCFT) Aim is to make U.S. Business taxation: Simpler Move toward a consumption-based taxation model Includes a “Border Adjustment Tax” (BAT) Occupies two pages of Proposal with little discussion on BAT 4// WHAT IS A DBCFT SYSTEM WITH A BAT? Radical change to U.S. business tax system Move largely to a territorial system Dividends from foreign subsidiaries exempted Repeals much of Subpart F Replaces with DBCFT with BAT: Allows for full expensing of: Capital investment Labor costs Other input costs Disallows deduction for net interest expense & certain other deductions, e.g., Domestic production activities deduction Allows R & D Credit 5// WHAT IS A DBCFT WITH BAT? (CONT.) BAT Exports of products, services & intangibles exempt from U.S. tax Imports of products, services & intangibles subject to U.S. tax (taxpayer is denied a deduction) 20% tax rate applies 6// This example illustrates the destination-based cash-flow tax mechanics: Current Tax House Proposal House Proposal System Example A Example B Revenues Export Sales $1,000 $1,000 $0 Domestic Sales $1,000 $1,000 $2,000 Total Sales $2,000 $2,000 $2,000 Costs Domestic Items $500 $500 $0 Imported Items $500 $500 $1,000 Total Costs $1,000 $1,000 $1,000 Pretax Income $1,000 $1,000 $1,000 Taxable Income $1,000 $500 $2,000 Taxable Rate 35% 20% 20% Tax $350 $100 $400 7// ECONOMIC CONSIDERATIONS Supporters say: BAT will ↑exports & ↓imports Provides a boost to U.S. business Reduce U.S. trade deficit Makes U.S. businesses more competitive in global markets—U.S. on equal footing with foreign companies Eliminate the benefits of abusive cross-border transfer pricing Proponents say: Currency exchange rates will adjust resulting in no net change in prices or quantities U.S. $ will appreciate resulting in imports being cheaper than U.S. goods Demand for U.S. goods in foreign markets will ↓ due to U.S. goods being more expensive Both can not be correct If U.S. FX rate ↑, what happens to the value of U.S. investments in foreign countries? 8// LEGAL & PRACTICAL CONSIDERATIONS Will DBCFT with a BAT comply with WTO guidelines? House Ways & Means Committee Chair, Kevin Brady, says “Yes” “Economically equivalent to a VAT” WTO has not previously ruled on whether DBCFT with BAT is compliant OECD recently published VAT/GST guidance endorses the destination principle, stating that goods & services should be taxed in the jurisdiction where they are consumed European Commission announced it will file a WTO complaint [drafting has already started] Impact on U.S. income tax treaties? Likely viewed as a legislative override of the PE concept New treaties would likely be required, a process that could take years to complete 9//
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