1493513662952 - Trump’s tax plans part of the race to the bottom by big countries – expert

Trump’s tax plans part of the race to the bottom by big countries – expert

New Zealand needs to take a more directly self-interested approach to tax reform, in the wake of President Donald Trump’s plan to shake up company tax in the United States, a Deloitte tax specialist says.

A spokeswoman for Revenue Minister Judith Collins said Inland Revenue officials were preparing advice on Trump’s proposals and would be reporting back to her shortly.

Trump on Thursday proposed slashing the US company tax rate from 35 per cent to 15 per cent, while also allowing US multinationals to repatriate an estimated US$2.6 trillion (NZ$3.8 trillion) of profits they have stockpiled overseas from their non-US operations at a “special tax rate”. New Zealand’s company tax rate is a middling 28 per cent.

A third change would mean US companies would no longer face US tax on profits they made overseas in future, bringing the US into line with the “territorial” approach followed by most other countries, including New Zealand.

READ MORE:
* OECD tax boss Pascal Saint-Amans forecasts company tax rates will fall as multinational rorts are stamped out
* Trump ‘determined to unleash economic growth for businesses’ with plan to slash taxes
* How NZ fits into the lolly scramble over company tax

Labour Revenue spokesman Michael Wood agreed it was ironic the proposals came just as the Organisation for Economic Cooperation and Development’s “Beps” initiative to stamp out multinational tax rorts was coming to a head.

Deloitte tax partner Allan Bullot said the Trump administration had indicated US firms would only have to pay an 8 or 9 per cent tax rate on the $2.6t stockpile.

Much of that money has been siphoned to tax havens by technology and pharmaceutical multinationals using accounting rorts such as the notorious “double Irish”.

Bullot said Trump’s proposal was clear evidence that “tax competition” – also referred to as a “race to the bottom” – was alive and well.

While Trump’s plan did not directly run counter to Beps, it would mean there was more of an incentive for companies to shift profits across borders when they were earned in higher-tax jurisdictions, he said.

The proposed US rate was “not a 12 per cent rate like Ireland”, but was a material incentive, he said. The UK was heading in a similar direction with regard to lowering company tax, he said.

“For us, when we are looking at what we should do in respect of those Beps initiatives, we need to be looking at this in terms of ‘what is best for NZ Inc’, not just doing what the OECD thinks we should do. Big countries like the US are not playing the global game.”

Wood said a race to the bottom would be of concern.

But OECD tax policy director and Beps champion Pascal Saint-Amans has previously downplayed the implications of legitimate tax competition.

He forecast in 2015 that company tax rates would fall, putting small businesses on a more even-footing with large firms that engaged in “aggressive tax planning”.

The important issue is that profits are taxed in the countries where the economic activity that generates them takes place, he has maintained.

Bullot said it was notable Trump’s one-page tax plan made no reference a “controversial and extreme” Border Adjustment Levy that could fill a gap left by lower taxes, but noted Trump had also not ruled out the levy.

That proposal would give New Zealand businesses that were focused on the US a reason to move operations to the US, he said.

“That would have a big impact on the New Zealand economy.”

Wood agreed the levy was the “biggest unknown”.

“Our understanding is there would be significant internal political challenges if [the US] wanted to go down that route – let alone the questions around existing international agreements,” he said.