The fact that many big US companies enjoy a significantly lower tax rate than that in previous year makes US Tax Reform be blamed for encouraging such tax avoidance practice. The recent effect seems to deviate from dissuading US companies moving profits overseas, which is in part the initial goal of the Tax Cuts and Jobs Act (TCJA).
Due to the policy change put into place by the TCJA, the US corporate tax rate declines from 35 to 21 percent and the rate would be10 percent if the income is from overseas. It means US companies will never be taxed at 35 percent for those profits previously shifted abroad when repatriating those profits. Many US companies such as Pfizer Inc., Expedia Group Inc.,Boston Scientific Corp., Synopsys Inc. and Microsoft Corp. obtain great benefits from the change to the territorial system. According to a speech made by Richard Gonzalez, the Chief Executive of AbbVie Inc., it is likely that the effective tax rate of AbbVie Inc. decline to 9 percent this year from around 22 percent in recent years.
Many US companies with significant operations report losses or relatively few profits in the US. For instance, a drug company AbbVie Inc., puts the most profitable patents in subsidiaries in low tax jurisdictions and make high royalty payment to those subsidiaries, although most of those patents are developed in the US. Despite a large sales revenues in US market, the US distributions earn a relatively low sales margin and bear the group costs incurred in US such as interest and executives’ compensation.
Although there is an anti-abuse rule, the new Global Intangible Low Tax Income (GILTI) provision in TCJA make a company liable to US tax as though it arose domestically when generating untaxed profits in a tax haven. However, the effective tax rate on such income is only 10.5 percent. Such income can be set against the GILTI provision or deemed US income if there exists a loss in the United States. This can reduce the tax liability further. For now, the current discussions about TCJA are centred on its implementation rather than redrafting the Act, said Senate Finance Committee spokeswoman Julia Lawless.
With the fast growth of China’s economy and the continuous improvement of the comprehensive strength of domestic enterprises, as well as the implementation of the “One Belt, One Road” policy, an increasing amount of Chinese enterprises are beginning to expand their global footprint and establish their presence in Europe.
TPA Global has developed a practical roadmap of 6 steps meant to guide CFOs in their Journey of rising above troubles to reach a situation of full control. These steps are presented in a series of short video clips (3-5 minutes):