What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
The tax changes that President Trump signed into law in December 2017 are the most significant overhaul of the US Tax Code in three decades. The changes lowered tax rates on corporations, pass-through entities, individuals, and estates and moved the United States toward a participation exemption-style system for taxing foreign-source income of domestic multinational corporations. To help offset the revenue impact of these changes, the new law also scaled back or eliminated longstanding deductions, credits, and incentives for businesses and individuals.
What has been the most significant impact of that change?
The changes have to be viewed holistically, which means that corporations and other organizations have to carefully consider how the new law could affect their business plans and performance. They have to re-evaluate their tax structure, review their capital allocation plans, and take a comprehensive view of enterprise value as well as their supply chains. These are significant, complex changes that require serious thought and scenario analysis at the C-suite level, informed by specialized expertise and state-of-the-art modelling.
How do you anticipate that change impacting your work and the market moving forwards?
Deloitte will continue to help clients navigate through the uncertainty created by tax reform. State-of-the-art modeling tools allow Deloitte Tax professionals to provide robust scenario analysis and customized reporting for new and existing tax provisions including global intangible low-taxed income ("GILTI"), foreign derived intangible income ("FDII"), base erosion and anti-abuse tax ("BEAT"), interest expense limitations, and changes for unincorporated businesses and individuals.
The new tax law, which lowered the corporate tax rate and reduced income tax on income related to US based intangibles, has also made some US corporations more attractive targets for mergers & acquisitions by foreign companies. Plus, the deemed repatriation provision has given many US multi-national firms access to a significant pool of cash with which to make investments. So, it is not surprising that a Deloitte survey earlier this year found that 42 percent of those surveyed anticipate that their company is likely or very likely to make an acquisition in 2018, and 26 percent expect their company to be acquired.
What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Congress seems to be in a holding pattern on additional major tax legislation, though we are watching for possible action on "technical corrections" that could clean up some drafting areas and additional guidance and regulations related to areas that need clarification in the 2017 law.
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
Deloitte is helping companies navigate the potential impact of an international tax system for the modern economy. Nearly a quarter (24.1%) of respondents in a recent Deloitte survey said a digital tax has the potential to have a significant impact to their organization, depending on how rules are adopted.
Provisions intended to encourage the repatriation of earnings currently held overseas, as well as new provisions relating to the taxation of the income of non-US affiliates of US MNEs, could lead to a tectonic shift in how US and non-US headquartered companies assemble their value chains, in which jurisdictions they choose to perform research and development activities, and where they invest in organic and inorganic expansion.
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