America’s Brexit: What a Donald Trump Presidency means for the tax world...

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If the Brexit vote was a geo-political earthquake, it might not be an overstatement to term Mr. Donald Trump’s giant upset in the US Presidential elections as a volcano. The largely unforeseen victory of Mr. Donald Trump, a politic novice, rattled the pundits and pollsters alike. While one can look for many similarities between the American elections and the Brexit vote, this Washington post headline captured it perfectly- “The revolt of the working class”.

The stock market volatility world over, in the last 48 hours demonstrates how even economic policy experts are having a tough time second guessing what a Trump administration’s ‘America First'  might mean for globalization, free trade agreements and international relations.

The Tax world too is sailing in the same ship as President elect Trump has promised ambitious tax reforms and an overhaul of the current US tax code. So what should the international tax fraternity brace themselves for from a Trump Presidency?

Ketan Dalal
(Managing Partner (West) and Sr. Tax Partner, PwC)

This is one more Black Swan event !

Obviously, tax is one small piece of the enormous implications of the USA President election result; however, the President-Elect has mentioned that one of his top priorities is comprehensive tax reform to significantly lower individual and corporate tax rates, with a very sharp fall indicated in the latter. He has also indicated a 10% deemed repatriation tax on foreign earnings of US based companies. The implication of lower tax rates would obviously mean far more invisible funds in the hands of US companies, partly offset by the deemed repatriation tax. He has also proposed full expensing of plant and equipment.

Accordingly to some estimates, these tax proposals would decrease revenue between USD 6-7 trillion over 10 years, and one wonders from where the revenues will then come from.

All in all, one does expect several changes, but how drastic they would be, only time will tell; also, the changes may be more US centric and may have limited implications on tax policy or tax rates for the rest of the world.

Nico Derksen
(Owner and Director, International Tax Management Pte Ltd, Singapore)

Another attack on my believe in rationality

Unless The Donald will show some consistency and ask for a recount, the rationally impossible has become possible; President Trump is born.

With this latest development on top of irrational responses to the financial crisis, resulting in completely unpredictable markets, I am tempted to retreat to a blissful life of riding the emotional waves.

With a majority for the Republicans in both Congress and Senate, a Republican president would normally be expected to largely be able to push through his agenda. In the case of Trump this may be less a given, knowing the internal opposition he has been facing within the party. This hopefully will blunt a number of the items on his election agenda. 

The protectionist measures he has been proposing could lead to a short term benefit for US Inc, but no doubt will encourage counter measures around the world, and on balance result in an overall weakened trading position for all.

What can we expect in the international tax arena? If Trump would live up to his campaign promises, the drastic lowering of the corporate income tax rate will curb inversions, and...

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Dinesh Kanabar
(CEO, Dhruva Advisors LLP)

I had an occasion to watch the entire presentation made by Donald Trump on his economic policies. A fair bit of it was devoted to tax policies. Some of his proposals are likely to have deep impact, including in India.

Trump would like to introduce a scheme for profit repatriation into the USA. He proposing a 10 per cent tax instead of the normal tax regime. Quite likely, captive BPOs in India sitting on loads of cash will want to repatriate profits.

Trump would like to take away the tax free regime to the Private Equity funds. Currently, the carry is regarded as part of tax free profits of Pension Funds and so not taxed. This is a clear lacuna which he wants plugged.

For new business he wants a tax rate of 15 percent and he want inverted import duty structure to go away...both of which resonate with what India is trying to do.

Finally, he wants to improve ease of doing business in the USA!!!!

Shanker Iyer
(Chairman, The Iyer Practice)

Needless the say, the result of the US election was a big shock to most people, arguably even more so than Brexit.

It would seem that the same forces which caused Brexit and similar upsets around the world ie those left behind by globalisation and immigration caused this upset result.

Whilst world markets did not take the result too well, I believe that they will stabilise sooner than later.

The US economy would expected to do well under the new President as a result of his expected business friendly policies and increased infrastructure spending.

However, we can expect an increasingly protectionist US going forward , given the stated position of the incoming President, and this does not bode well for world trade.

As for international tax policy, I believe the US will adopt a more assertive position now that the Republicans control the White House and Congress.

Porus Kaka
(IFA President & Sr. Advocate)

With a full Republican Congress and President major changes are expected on the Tax Front perhaps in the first 100 days itself. This mornings  New York press expects major cuts in Taxes on businesses and households including the wealthiest of upto $6.2 trillion in Federal Revenue. Interest Rates may rise.

What to look out for is whether the Tax reforms are limited to Tax cuts or a  major overhaul of the US Code that could have a knock on effect for the Global Tax Policy- some areas to look out for is the current US Corporate Tax Policy on Repatriation benefits for Corporates and the benefits for retained earning outside US and also the million dollar question of  a Trump administration view on BEPS.The last time  there was a major overhaul of the US Code was under Ronald Reagan. In August 2015 republican Senators Ryan and Hatch had in fact even expressed concerns on the Cbcr requirements on US corporates. These Senators are now in Charge- Could under a Republican administration there be a US Brexit from BEPS?

Jeffrey Owens
(Former OECD Tax Policy Director)

The election of President Trump could put the US, once again, at the forefront of the global tax reform. With control of both the House and Senate, he will have the votes to pass a major tax reform bill in his first 100 days. The outlines of such a reform are already pretty clear from Trump’s previous statements which will mean a more competitive, simpler but perhaps more regressive tax system:

  • Reducing the Corporate Income Tax rate to between 15-20% and at same time eliminating some tax incentives
  • Moving from a worldwide to a territorial system with perhaps a temporary 10% rate on repatriated profits
  • Reducing the Personal income tax rates brackets from 7 to 3 
  • Eliminating the inheritance tax    
  • Other countries will feel the impact of the following reforms: 

  • Repatriation of a significant part of the Trillion of dollars held offshore by USMNE could have a deflationary impact particularly in European economies
  • The reforms will intensify global tax competition and intensify the trend to reduce corporate income tax rates: race to the bottom will be accelerated
  • One of the interesting questions will be how will a Trump administration engage in the G20 debate on taxation and what level of support will...
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