Lower corporate tax rates around the world are expected to play an important part in multinational companies’ tax planning in 2017, with a rate as low as 15 percent on the table in the U.S. and countries such as the U.K. planning to maintain or lower their current rates. Peter A. Barnes, of counsel in the international tax group at Caplin & Drysdale, Chartered in Washington, said countries outside the U.S. tend to focus more on consumption taxes, such as goods and services taxes, and taxes that essentially are based on sales—as with the U.K.'s diverted profits tax—and withholding taxes on digital sales.
A U.S. tax overhaul may give a slight momentum to these foreign law changes, Barnes told Bloomberg BNA, “but the impact of U.S. changes will not be great, because the trend in these foreign law changes is already underway.”
He also warned that even with lower corporate income tax rates, the U.S. will need to ensure that foreign-owned businesses in the U.S. pay appropriate tax. “The U.S. has not always done a good job of protecting the U.S. tax base,” Barnes said.
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Barnes said a key question will be whether the U.S. offsets the reductions in income taxes with increased consumption taxes.
There may not be a federal VAT, but the U.S. can increase consumption taxes in other ways, such as with increases in federal excise taxes and by pushing away costs currently borne at the federal level, he said. The states, he noted, already raise significant revenue through consumption taxes.
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Excerpt taken from the article “Tax Rate Competition Part of New Reality” by Kevin A. Bell for Bloomberg BNA.