US Tax Reform

The impact goes beyond tax management, business planning, operational structures and market competition. The main change is reducing the federal corporate tax rate from 35% to 21%. While this significant cut makes US taxation more competitive, it is not yet the lowest in the G7. In addition, the TCJA closes a series of exemptions, which may mean that the gain is not as large as the 14% cut.

Prior to the reform, the US tax regime was aligned with other major economies. Having now moved to a "quasi-territorial" system, where tax is paid where money is subject to some "protections" to prevent abuses in international tax planning. This levels the environment with leading international competitors.

TCJA gave corporations an opportunity to repatriate funds held abroad, free of future US tax (following a transition "toll fee" payment). Further relief comes from a "participation exemption" on the dividend income tax of foreign subsidiaries. While such an exemption is another move toward the international center of tax severity, the US qualification limit of a 10% stake is noticeably lower than the 25% standard.