Although he is certainly a candidate amongst many and he’s not the first to release a tax plan, he’s been the most polarizing figure in the race thus far. His plan covers many areas, but there are two points that really stick out:
Trump claims that there’s $2.5 trillion in overseas cash from U.S. companies across all industries, a claim backed by Goldman Sachs in early 2015. Trump has proposed a one-time tax on these overseas earnings of 10% instead of the current top rate of 35%. He has yet to specify the window of opportunity for these corporations to comply in order to qualify for this tax holiday.
Technology companies such as Google and Microsoft have had a long documented history of keeping liquid assets in foreign subsidiaries as a bold, yet practical, tax strategy. In their latest company filings, Microsoft had $108.3 billion which was permanently reinvested outside of the U.S; the effect of repatriating that cash back to the U.S. would subject them to a $34.5 billion liability. Google noted that their current plans are to keep $40.3 billion in cash, cash equivalents, and marketable securities away from Uncle Sam.
Trump sees the current corporate tax rates as a killer to economic growth in the U.S. By cutting the tax rate, he’s giving employers the opportunity to use the freed-up cash to stimulate the U.S. workforce. He believes that his reform will curb organizations from performing corporate inversions, something that raised eyebrows in 2014 when Burger King went north of the border. If we can only get him to provide clarity on sales tax rules regarding software as a service (SaaS) for nexus purposes, then we’ll really be talking about simplification.
Trump isn’t the first person with a presidential campaign to promise an overhaul to the behemoth that is known as the Internal Revenue Code (IRC) of 1986 and he certainly won’t be the last. However, he’s relying on eliminations of deductions and loopholes from the very rich, as well as the cooperation of U.S. companies to repatriate their cash to fully counter the effect of the lost income due to the tax cuts. If he does get elected President, it won’t be his decision as to whether or not his plan is carried out as is, but he will certainly try. I’m sure we will all be watching.
|Solomon Feraidoon, CPA
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.