The reform involves a general reduction in the tax burden for companies of any level. Its implementation should encourage local corporations to increase investment., and transnational American giants - to increase investments in existing businesses in the United States, including by repatriation of profits or some part of it.
The repatriation issue mainly concerns the IT sector companies, who loved to apply offshore schemes and concentrate profits abroad, to avoid paying high American corporate fees taxes. According to the latest reports, cash and assets, equated to those, on the balance sheets of a number of US companies is the annual budget of a decent state and exceeds the annual GDP of many countries of the world:
- Apple — $269 billion
- Microsoft — $133 billion
- General Electric — $93 billion
- Alphabet (Google) — $86 billion
- Cisco Systems — $70,5 billion
- Oracle — $66 billion
If such corporations decide to repatriate profits, they will win, first of all, their shareholders. They can look forward to at least an increase in return on funds through dividends and / or expansion of share buyback programs..
Although the project, maybe, will have to undergo some changes before becoming law, its basic concept has already taken shape.
Big business
One of the main messages of the current draft tax reform is the desire to make American corporations more competitive compared to rivals from other developed countries.. These goals are pursued by the reduction of income tax from 35% to 20%.
Of course, no guarantee, that taxes in other countries will also not be reduced, But so far, there are no such changes in the information agenda.
US Congress proposes to allow one-time depreciation of the full cost of capital equipment, thereby reducing the taxable base. This option can be entered on 5 years, so as not to destabilize the budget. In general, this should encourage corporations to increase investment activity and capital investments.
An important piece of the mosaic of corporate tax reform is the issue of the "offshore" income of American companies. To bring the American tax code in line with global practice, Congress proposes to abandon the extraterritorial principle of taxation of income of foreign subsidiaries of American companies.
Wherein, in order not to encourage the transfer of profits of US companies to low-tax jurisdictions, a number of restrictions will be imposed. So, for example, 20% the income tax rate will only apply to 50% any "excess" income (any income in excess of normalized for assets of this type), earned abroad.
Among other things, the project offers a kind of one-time "tax indulgence" for cash, held in offshore accounts of American companies. It is disposable 12% prior income tax, in cash form, or 5% in the case of their reinvestment in an existing business in the United States.
Medium and small businesses
Donald Trump's tax reform could also have a significant impact on American mid-cap companies (from $2 to $10 billion). Congress proposes to introduce a new flat income tax rate in 25% for small business owners and limited partnerships, as well as for individual entrepreneurs.
This should eliminate the practice of so-called "transit businesses", When the income of the company is not taxed at the level of the company itself, but they pass in transit to the level of an individual-owner, where u get the rate on a progressive scale up to 39,6%.
For such income, there are restrictions on their size - up to 30%. You need it, so that there is no temptation to reduce the individual income tax immediately by 15%, just re-registering as an individual entrepreneur, if a, for example, before that, a person made money as a hired highly paid consultant.
Taxation of individuals
The project also provides for a number of changes in terms of individual tax rates., Deductions, tax exemptions and allowances. In particular, the progressive scale of taxation Congress proposes to keep with a ceiling in 39,6%.
Earnings in excess of this rate will fall under this rate $500 000 in year (at the moment it is $418 000) for "lonely" citizens and above $1 million (against $470 000 Right away) for married couples, who declare income together.
At the same time, the standard tax deductions for "single" practically doubled - up to $12 000 from current $6 350, for married couples - up to $24 000 from current $12 700. However, at the same time, various other tax deductions are simultaneously canceled and / or reduced.. For example, on the amount of interest payments on the mortgage.
Impact on the markets
There is an opinion, that the transfer of production to the USA (along with the growing global "robotization 2.0") could have an extremely negative impact on a number of emerging markets. This is especially true for those, where the main and, in fact, the only advantage is cheap labor.
Nevertheless, it is too early to sound the alarm, since it is not clear, how will the real implementation of the tax reform project go and to what extent corporations will be ready to follow this plan.
The potential adoption of the tax reform in its current form will have both positive, and negative consequences for certain areas of the economy and various asset classes, namely:
— will help the business of small and mid-cap companies, by definition focused on the domestic market. They are widely represented in the corresponding index Russell 2000;
— spur the growth of the economy as a whole through the expansion of effective demand and increased investment;
— will contribute to the growth of the broad stock market (S&P 500, Russell 2000). At the same time, we should expect an increased demand for shares of corporations - potential "repatriates";
— will cause a rise in yields and an increase in the slope of the yield curve in bonds — especially, For papers with high duration;
— can create quite a serious demand for the dollar and the corresponding pressure on currencies, from which the money will be converted, in connection with the massive repatriation of offshore profits;
— may increase pressure on securities (mostly, bonds), in which these currencies were invested.
Anyway, It is unlikely that you should expect an avalanche effect. Everything will be done calmly and measuredly, so as not to unnecessarily destabilize financial markets.
A source : http://www.forbes.ru/finansy-i-investicii/353303-syurprizy-ot-trampa-kak-nalogovaya-reforma-v-ssha-otrazitsya-na-fondovyh
