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Xinhua News Agency: Will the tax reform lead to the return of global capital to the United States? Short-term assertion

December 03, 2017 at 19:45
source: Xinhua
edit:Oriental wealth network

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Summary
[Xinhua News Agency article analysis] US companies will significantly reduce the tax rate, the tax system will also have a greater change will lead to global capital return to the United States?

As the largest "achievement" since the Trump administration came to power, the largest tax reform bill in the United States in 30 years is about to come out. U.S. corporate tax rates will be drastically reduced and the tax system will also undergo significant changes. As the world's largest economy and the most important consumer market and investment destination, whether the United States conducts a large-scale tax reform will lead to a massive return of financial and industrial capital globally has become a topic of widespread concern in the outside world.

After the House of Representatives passed the tax reduction bill last month, the Senate passed its own version of the tax reform bill barely passed the 51-vote, 49-vote opposition early on the 2nd. Starting from the 4th, both houses of the House and People's House will conduct arduous "reconciliation" consultations to eliminate the differences between the two versions. At present, the two versions of the court are quite different in many details, such as the adjustment of personal income tax level, the start-up time of corporate tax relief, and the relevant provisions on tax deductions.

Disagreements are expected to be very difficult. The unified version reached after the consultation must be submitted separately to the two houses for voting. Both houses can vote for approval before the president signs the law. The top Republican congressmen hope to complete the tax reform legislation by this Christmas, but analysts say the delay can not be ruled out until early next year.

Judging from the impact of the tax reform on the United States, the current versions of both houses are biased toward the rich. According to the Washington think tank tax policy center, most of the benefits of this tax relief will be obtained by high-income families. Therefore, this tax reform is likely to exacerbate the United States polarization between rich and poor and social conflicts.

Internationally, the biggest impact of the tax reform will be a drastic reduction of corporate income tax in the United States and a change in the U.S. taxation system. First, the U.S. corporate income tax dropped significantly from 35% to 20%. In addition, multinational corporations currently hoard their 2.6 trillion U.S. dollars of overseas profits for tax avoidance and repatriate the United States legitimately with a one-time payment of 14%.

Second, the United States turned the current global taxation system into a tax-dependent system, exempting overseas subsidiaries from dividend income tax. But at the same time, the tax reform added a 20% "enforcement tax" to MNEs to limit their tax avoidance through internal transactions with branches outside the United States. The new tax could impact the international industrial chain and prevent multinationals from relocating the industry out of the United States.

Tax reform bill hundreds of pages thick, huge and complicated, analysis agencies and experts are difficult to assert within a short time whether the United States tax reform will immediately lead to tremendous changes in international financial and industrial capital flows, that should be avoided to draw too simplistic conclusions .

First, while the Trump administration claims tax cuts will help businesses expand their investment and stimulate faster growth, economists warn that lower tax rates will not necessarily result in firms investing more and firms may put more money into financial markets Or for dividends, may not contribute to the real economy.

Moreover, although the nominal corporate tax rate in the United States is the highest among developed countries, according to OECD statistics, due to various deductibles and tax loopholes, the actual corporate tax rate in the United States is only 18.1%, lower than the 19.4% average of Japan, France, Germany, Level. Under such circumstances, it is unclear whether tax cuts can change the current investment behavior of enterprises.

Second, we can not conclude that the corporate investment will flow to the low-tax countries by simply comparing the corporate tax rates in other countries. The tax rate is only one of the factors that affect the investment of enterprises. Other factors include the size of the market, the supply chain, industrial clusters, the business environment , The rule of law environment, macro policies and so on.

Observers pointed out that the United States tax reform is the most worried about, not so much to reduce the tax rate, as it is for the tax base, that is, through the implementation of tax will not tax in the past included in international tax transactions in the United States, or the use of tax levers to force companies to Production links remain in the United States.

According to KPMG's research, the version of the House tax reform that gives the global tax system coordination and challenges to the international industrial chain can not be underestimated. If this version of the bill eventually becomes law, it may force many current bilateral and multilateral tax agreements to be adjusted .

In the era of economic globalization, especially the rapid development of the more mobile digital economy, the issue of coordination of international taxation has become more and more serious. International tax loopholes make multinational corporations crazy tax avoidance, competitive tax cuts may worsen the financial status of governments, competing for the tax base may lead to double taxation, supply chain distortions and other issues. Therefore, the tax issue has become not only the internal affairs of a country, but a multilateral issue requiring international cooperation.

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                (Editor: DF075)

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