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Xinhua News Agency: Will the tax reform cause global capital to return to the United States? Short-term difficult to assert

December 03, 2017 19:45
source: Xinhua Net

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[Xinhua News Agency] The tax rate of US companies will be greatly reduced, and the taxation system will also undergo major changes. Will it cause global capital to return to the United States?

As the biggest "score" since the Trump administration took office, the largest tax reform bill in the United States in 30 years is about to come out. The corporate tax rate in the United States will be greatly reduced, and the taxation system will also undergo major changes. As the world's largest economy and the most important consumer market and investment destination, whether the large-scale tax reform in the United States will cause financial and industrial capital to return to the United States on a global scale has become a topic of widespread concern.

After the House of Representatives passed the tax reduction bill last month, the Senate barely passed its own version of the tax reform bill in the early morning of the 2nd with 51 votes in favor and 49 votes against. Beginning on the 4th, the Senate and the House of Representatives will conduct an arduous “reconciliation” consultation to eliminate the differences between the two versions. At present, the two hospital versions differ greatly in many details, such as the adjustment of personal income tax level, the start time of corporate tax reduction, and the relevant provisions of tax deduction.

The disagreement negotiation is expected to be very difficult. The unified version reached after the consultation must be submitted to the two houses for voting. Both houses must vote before they can submit the president to sign the law. The Republican Party in the US Congress hopes to complete the tax reform legislation before Christmas this year, but analysts say it is impossible to rule out the possibility of delay until early next year.

Judging from the impact of the tax reform on the United States, the current version of both houses is biased towards the rich. According to the Washington Think Tank Tax Policy Center, most of the benefits of this tax cut will be obtained by high-income families. Therefore, this tax reform is likely to aggravate the polarization of the rich and the poor and social contradictions in the United States.

From an international perspective, the biggest impact of this tax reform will be a significant reduction in US corporate income tax and a change in the US taxation system. First, US corporate income tax has fallen sharply from 35% to 20%. In addition, the 2.6 trillion US dollars of profits that multinational companies currently hoard overseas for tax avoidance can be legally repatriated to the United States with a one-time payment of 14%.

Second, the United States has transformed the current global taxation system into a territorial taxation system, exempting overseas subsidiaries from dividend income tax. At the same time, however, the tax reform has added a 20% “execution tax” to multinational companies to limit these companies from taxing through internal transactions with branches outside the United States. This new tax may impact the international industrial chain and prevent multinational companies from moving the industry out of the United States.

The tax reform bill is hundreds of pages thick and the content is huge and complicated. It is difficult for analysts and experts to assert in a short period of time whether the US tax reform will immediately lead to a great change in the flow of international financial and industrial capital. It is considered that the conclusion that it should be too simplistic should be avoided. .

First, although the Trump administration claims that tax cuts can help companies expand their investment and stimulate faster economic growth, economists warn that lower tax rates may not necessarily lead companies to increase investment, and companies may invest more money in financial markets. Or for dividends, it does not necessarily contribute to the growth of the real economy.

Moreover, although the US nominal corporate tax rate is the highest among developed countries, according to OECD statistics, due to various deductions and tax loopholes, the actual corporate tax rate in the United States is only 18.1%, which is lower than the average of 19.4% in Japan, France, Britain, Britain and Italy. Level. In this case, whether the tax cut can change the current investment behavior of the company is not known.

Secondly, it is not possible to conclude that corporate investment must flow to countries with low tax rates by simply comparing national corporate tax rates, because tax rates are only one of the factors that affect corporate investment. Other factors include market size, supply chain, industrial clusters, and business environment. , the rule of law environment, macro policies, etc.

Observers pointed out that the most worrying thing about the US tax reform is not to lower the tax rate, but to compete for the tax base, that is, to implement the tax to incorporate international tax transactions that were not taxed in the United States into the tax range of the United States, or to use tax leverage to force enterprises to Production links remain in the United States.

According to KPMG's research, the challenge of the tax reform of the House of Representatives to the global tax system coordination and the international industry chain cannot be underestimated. If this version of the bill eventually becomes law, it may force many current bilateral and multilateral tax treaties to adjust. .

In the era of economic globalization, especially the rapid development of a more mobile digital economy, the issue of international tax coordination has become increasingly severe. International tax loopholes enable multinational corporations to squander tax evasion. Competitive tax cuts may worsen the fiscal situation of governments. Competition for tax bases may lead to double taxation and distortion of supply chains. Therefore, the taxation issue is not only a domestic policy but a multilateral issue requiring international cooperation.

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                (Editor: DF075)

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