President Trump touched on tax reform in his recent speech on February 28, 2017.
While the address to the joint session of Congress did not discuss timing for any anticipated tax proposals, the President appeared to provide support for some type of import tax. In the speech, the U.S. President spoke in generalities and declined to provide any specific details, but did state that the United States "must create a level playing field for American companies and our workers... Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes, but when foreign companies ship their products into America, we charge them nothing or almost nothing".
Despite these comments, it is still unclear whether the White House supports a border adjustment tax as contemplated in the House Republican's tax reform proposal, or whether it is considering another kind of import tax. President Trump has publically contemplated imposing some sort of "border tax" that is more akin to a tariff (for details of the House Republican's plan see TaxNewsFlash-Canada 2017-02, "U.S. Primed for Tax Reform Changes").
Trump administration's priorities
While President Trump's address did not provide specifics on when tax proposals may be coming, he confirmed that comprehensive tax reform is among his highest priorities while speaking at the Conservative Political Action Conference on February 24, 2017. Despite conflicting reports from the White House, the Trump administration has said that it plans to deal with tax reform only after the replacement of the Affordable Care Act (ACA). In addition, Vice President Mike Pence recently pledged sweeping tax cuts before summer, while Treasury officials have said that the goal is to pass tax reform before Congress adjourns in August. However, given that past tax reform has often taken many years, these projections may be optimistic.
The budget, projected by White House officials to come as early as March 13, 2017, may provide a preview of what the ultimate tax reform package will look like (for details on the budget process see Global Tax Adviser "Will U.S. Budget Herald Tax Reform?", dated January 27, 2017).
Border adjustment tax
Given President Trump's comments on the import tax before Congress, it is unclear whether the House Republican's proposal for a border adjustment tax (the BAT) will be rejected outright, or whether the White House will propose an alternative. In broad terms, the BAT makes imports of goods, services and intangibles non-deductible and exports of these items exempt from corporate tax (see Global Tax Adviser "Border Adjustment Tax - What Canadians Should Watch For", dated February 10, 2017). The White House has not specifically endorsed the BAT, which remains the most controversial aspect of the House Republican's tax reform proposal. Economists and businesspeople remain divided as to whether such a tax will have a positive effect on taxpayers and the overall economy.
Despite many public statements on the topic, the President's position on the BAT is still unclear. President Trump has called the BAT "too complicated" and a White House economic advisor has indicated that the White House does not support the BAT. However, President Trump has also said that such a tax "could lead to a lot more jobs in the United States" and Treasury officials have said that he does support some kind of border tax.
Forward momentum on regulatory reform
President Trump recently signed an executive order to require federal government agencies to carry out regulatory reforms. Specifically, the order requires agencies to evaluate existing regulations to determine, among other things, whether they inhibit job creation or impose substantial costs. The order, signed on February 24, 2017, follows an earlier order in January 2017 that requires two regulations to be withdrawn for each new regulation issued.
How this new order will apply to U.S. Treasury Regulations (and potentially to IRS guidance) is still unclear, since the regulations and guidance provide important explanations and directions on interpreting and implementing the Internal Revenue Code.
There has been no indication that the Trump administration will remove the regulations intended to limit earnings stripping by way of cross-border intercompany debt in section 385 of the Internal Revenue Code. Though controversial, these regulations appear to be in line with the Trump administration's goal of keeping money and jobs in the United States.
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Information is current to March 02, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500