As voters in the US have elected Joe Biden to be their next President, we highlight the key takeaways for UK investors.
Voters in the US have elected Joe Biden to be their next President. When reflecting on the US elections, UK investors are also considering the House and Senate election results, Biden’s corporate tax agenda and perhaps most importantly, what this all means for UK investors right now. Our article highlights the key takeaways.
House and Senate Elections
At the time of writing, it appears that the Democrats and Republicans will retain control of the House of Representatives and Senate, respectively. Thus, we expect there will continue to be a divided government at the federal level in 2021, although the Senate results may not be certain until January 2021. A divided government will make it difficult for Democrats to pass legislation even with Biden as President, increasing the need for both parties to gather bipartisan support for the issues facing the nation. As individuals in the US and around the world wait for the results of the remaining Senate seats and details regarding Biden’s strategic priorities, tax directors are considering what’s next for the business community.
Biden’s Corporate Tax Agenda
Biden is considering raising corporate taxes by increasing the corporate tax rate to 28 percent (reversing half of Trump’s cut to 21 percent), doubling the tax rate on global intangible low-taxed income earned by foreign subsidiaries of US corporations (from 10.5 percent to 21 percent), and creating a new 15 percent corporate minimum tax on global book income of $100 million or more, although the manner in which these would be done is still uncertain. As the factors that affect what tax proposals may come, first, later, or not at all unfold, more details on the Biden tax proposals, including incentives to encourage domestic manufacturing and important context, may be found in a FAQs document prepared by KPMG in the US.
What does this mean for UK investors right now?
Provisions that are currently set to expire in 2021 will be top of mind while businesses attempt to model the impact of the COVID-19 pandemic on financial projections. Notably in the lending space, businesses will need to revisit their projected interest expense because the base for calculating interest expense deductibility under section 163(j) is scheduled to narrow from earnings before interest, tax, depreciation and amortisation (EBITDA) to earnings before interest and tax (EBIT) for tax years beginning after 2021. The new restrictions and broader market conditions, such as the transition away from the London inter-bank offered rate (LIBOR), mean that tax specialists will need to work closely with treasury and other internal stakeholders to reduce the risk that modifications to contracts could result in a taxable exchange.
Businesses will need to take a holistic approach to modeling the impact of lending changes and the interaction of such changes with other legislation (e.g., businesses that are expecting to generate net operating losses (NOLs) will need to consider the impact of the new NOL limitation, generally 80 percent of taxable income, that is scheduled to apply for tax years beginning on or after 1 January 2021).
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