The latest corporate tax reforms is a meticulously curated idea to ensure that the money that many stash away across the globe comes back home. There has been a drastic tax deduction of the corporate-tax rate; it has fallen from 35% to 21%. Not only does this move bring corporate tax below the rich-country average but also ensures that the money earned by the country’s corporate remain in the country. Due to the high tax rate, American businesses have been affected in several ways with respect to jobs, money, profits, and tax revenues overseas.
Companies with a big overseas presence have had a good run of evading taxes they would otherwise have to pay if the money enters the country. However, with the latest drop in the corporate tax rates, its primary implication is territorializing the American business by bringing back billions of dollars earned abroad at a lower rate. Other implications also include the necessary boost for domestic businesses that will see growth. Another add-on to this bold move is a reduction in the tax that the companies must pay for foreign profits, which is as low as 15.5%. However, there is a catch here. While earlier, businesses had to pay tax for the money that entered the country, now they’ll have to fork out and pay tax on all the foreign cash earned.
You Might Also Like : 22 Most Overlooked Tax Deductions
Implications
Every industry would have different implications of the corporate tax reform.
- Banks: All banks will have to pay a little above the previously stated taxes, but analysts have claimed that the bill would certainly benefit these banks. Considering how corporations pay relatively high and effective tax rates, with fewer deductions (unless there is a deferred tax asset), banks can benefit from the reduced rate.
- Pharmaceuticals: Pharmaceutical companies will also benefit from the reduction in the tax rate as well as from the tax levied on overseas profits. The cash flow made from this would directly go to the shareholders of the companies.
- Real estate: In real estate, there would be a deduction of 23% on business income. The bill doesn’t emphasize on major changes in this sector.
- Telecom: Reports state that the biggest winners from the tax reform would be the telecom sector. The increase in the deductibility of capital investments combined with the reduced corporate income tax will give companies the opportunity to invest in fiber optic cable.
- Industrial sector: As stated earlier, the primary motive to bring about the tax reform is to ensure that the foreign profits of American companies are returned back to the country. With a deduction in the corporate tax rate as well as the repatriated rate, companies will be able to invest more in US operations and the money will stay in the country.
- Technology: Reports suggest that an estimated $3.1 trillion has been raked in by US companies in overseas earnings. Once again, thanks to the lowered tax rates, all the money stockpiled abroad will be returned to the country.
Keep yourself updated with the latest on Taxes. Like us on Facebook and follow us on Twitter for more on Investments.
