Prepared by Ed Carr (Senior Content Specialist) and Diana Winfield (Head of Content – Tax, Accounting & Superannuation).
Following the US presidential election, thoughts begin to turn to “What does this mean for Australia?” More specifically, what could this mean for our tax system?
The majority of Trump’s tax policies are focussed on domestic US tax issues. However, there are some that could have an impact on Australia.
- Lowering the company tax rate to 15% (from 35%) to make US companies more competitive worldwide as well as keep US companies onshore. This may put more pressure on other countries, including Australia, to follow suit and reduce their company tax rates to be competitive. We have seen companies relocating to take advantage of lower corporate tax rates.
- The proposal for a deemed repatriation of corporate profits held offshore, at a “one-time” reduced tax rate. This is aimed at the practice of US companies not repatriating profits to the US because the profits will be taxed at the US corporate tax rate (less any foreign tax credit). They hold profits offshore in low tax jurisdictions. This should not have a great impact on Australia as we are a fairly high-tax jurisdiction, and US companies are inclined to reduce profits earned here (in some cases by transfer pricing) so as not to suffer higher Australian tax (as seen in the Chevron case).
However, as a general observation, Trump is expected to be more “isolationist”. There would have to be some concern about the strength of America’s commitment to international co-operation on BEPS. BEPS relies for success on the widest possible cooperation, including “harmonisation” of approaches to multinational tax avoidance. How far the Americans go in their implementation could impact Australia, for example in the area of information-sharing between revenue authorities. It seems the US is on board for that, but might they say that sharing information under country-by-country reporting is not in the interests of US companies? We will have to wait and see.
Some commentators are suggesting that the Trans-Pacific Partnership, which includes the US and Australia but is yet to be ratified, may be abandoned. But with research finding that Australia and the US would receive the least economic benefits from the TPP, this may not be such a bad thing after all.
We will probably have to wait until well into 2017 to understand the full impact this political change will have on Australian tax policy. Until then, enjoy the ride.