Analysts are weighing the impact of President Trump’s much-publicized VAT comments about China and Mexico, and of the House Republican’s border tax reform proposal on international trade. The proposal would convert the current corporate income tax into a “destination-based cash flow tax.” A key provision of the new business tax is that it would be “border adjusted.”
What is the difference between a tariff and a border adjustment? A tariff is a tax on specific imports from certain countries, such as Mexico. The border adjustment, however, is a broader measure that would affect corporate taxation on all goods from anywhere outside the U.S.
In Trump’s tax reform plan, the border adjustments closely mirror those in economies with consumption-based VAT tax systems. Both foreign and domestically produced products would be taxed when sold within the US, but exports would be eligible for a tax rebate. Economists predict that this reform will cause the dollar to strengthen as a result of increased demand for cheaper (non-taxed) US-manufactured products. The strengthened dollar would subsequently increase US purchasing power, effectively offsetting the import tax.
The border adjustment tax also addresses Trump’s campaign promise to American business leaders to reduce the corporate income-tax rate, as companies would be taxed where their revenue is earned rather than where their products are produced.
Analysts at Deutsche Bank conclude that “the proposed changes to the US corporate tax code could be one of the most important shifts in US tax and international trade policy in a generation.”
- Are you confused as to where your business stands amidst the proposed tax reforms?
- Will your cross-border operations be effected?
- Would you like to analyze your company’s level of preparation for these tax changes?
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Since 2012, VATBox has been revolutionizing the automated VAT recovery marketplace with its cloud-based solution, leading the worldwide foreign VAT recovery arena. With offices in London, Paris, Munich, New York and Tel Aviv, VATBox operates globally to give businesses full control over their tax spend and recovery.
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