Company Tax - US Influences

Interesting read

With planned reforms in France and Belgium, Australia will have the second highest company income tax rates by 2020.

Australia’s investment challenge in wake of 2018 US tax reform

US tax reform will not only have implications for Australia’s ability to compete for multinational investment, but the positive flow-on effects of investment: technology, jobs and tax revenues. As we stated in last year’s 2017 report on the prospects for US tax reform at that time:

US tax reform would dramatically result in Australia having a much higher tax burden on investment compared to the United States, a reversal of the past two decades. It will be a policy development of significant importance to those countries that are trading partners with the United States.1

Contrary to many predictions, the US government adopted as of 1 January 2018 its first major tax reform since 1986.2 While personal tax rates have been reduced, it is business tax reforms that were most innovative.

For decades, most companies with US operations would try to keep profits out of and costs in the United States to reduce worldwide taxes. Following the 1 January 2018 tax reforms, companies with US operations are re-evaluating supply chains, investment plans and financing with the aim to shift investment and profits to the US and interest expenses and general administrative expenses to affiliates in other countries.

This shift in strategic planning is due to five major provisions in the US reforms:

• A 14-point reduction in the federal company income tax rate to 21 per cent as well as the elimination of the minimum company tax rate
• The adoption of a dividend exemption system similar to Australia for foreign source income, enabling US parents to bring money home
• The expensing of investments in machinery just at the time that companies are looking to adopt new technologies such as digitisation, artificial intelligence, robotics and big data
• Various tightening provisions especially with respect to interest deductions and losses
• Incentives to hold intangible income in the US rather than other countries (e.g. intellectual property, marketing and mining intangible income).

Overall, the US is reducing its company income tax rate (including GDP-weighted state income taxes) from 39.2 to 26.6 per cent. Its effective tax rate on capital is dramatically declining from 34.6 to 18.9 per cent (with state income taxes likely to be reformed in the coming year). The US is now much more tax-attractive for investment, encouraging companies to reevaluate their global and regional supply chains.

 

This is in part Trumps tax reforms...

From my personal experience US has always been more tax attractive than Australia. As a property investor its massive, no stamp duty, deferred CGT

 

The foreign controlled company issues pose some concern since its not as easy as just using a US company and saving tax. If a Australian tax resident wants to adopt a lesser US rate then far greater issues must be considered as the ultimate taxation could actually fall to Australia.

I have seen a few budding Amazon enterpreneurs fall victim to overhype of the merits of US tax only to find their US company is controlled here and subject to AU tax and NOT US tax. Same with property. The LLC could be subject to AU tax.

The article has good application for multinationals who operate globally ie ebay, amazon, Netflix etc etc. Trumps trying to encourage the profits to be taxed locally rather than in a Irish-Dutch sandwich. But if we use the example of Singapore (eg Microsoft) then Trumps tax rates arent an incentive since a 4-8% tax rate is still lower and the Bermuda profits tax rate is just 0%.