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Nexia Ebner Stolz

Country Reports

USA: Key Points of a Comprehensive Tax Reform

The plans of the US Go­vern­ment to im­ple­ment a com­pre­hen­sive tax re­form are be­com­ing in­cre­asin­gly con­crete. On Sep­tem­ber 28, 2017, US Pre­si­dent Do­nald Trump an­noun­ced the key points of the re­form. The core ele­ment of the tax re­form is a si­gni­fi­cant de­crease in the cor­po­rate in­come tax rate from 35% to 20%, which would cause in­ter­na­tio­nal tax com­pe­ti­tion to in­crease si­gni­fi­cantly.

Small and fa­mily-ope­ra­ted busi­ness would be sub­ject to a ma­xi­mum tax of 25% on their in­come in­stead of the cur­rent in­di­vi­dual in­come tax rate.

USA: The Key Elements of a Comprehensive Tax Reform © Thinkstock

Note

If the tax rate on com­pany pro­fits in the United Sta­tes is re­du­ced to be­low 25%, it may be ne­cessary to ex­amine from the Ger­man per­spec­tive whe­ther the CFC ru­les of the For­eign Ta­xa­tion Act would be trig­ge­red by an in­vest­ment in com­pa­nies in the United Sta­tes.

To boost the US eco­nomy, for a pe­riod of at least five years, ex­pen­ses for new in­vest­ments will be able to be amor­ti­zed im­me­dia­tely. Fur­ther­more, a ter­ri­to­rial sys­tem is to be in­tro­du­ced, whe­reby US com­pa­nies will have to pay ta­xes on their pro­fits ge­ne­ra­ted in the US. Ar­ran­ge­ments to safe­guard the US as­sess­ment base are still to be drawn up. To eli­mi­nate in­cen­ti­ves to avoid ta­xa­tion of for­eign pro­fits dis­tri­bu­ted to the USA, such pro­fits are to be sub­ject to a one-time ta­xa­tion at a low tax rate, with a dis­tinc­tion made bet­ween il­li­quid as­sets and li­quid as­sets.
 
The tax rate for per­so­nal in­come ta­xa­tion, which cur­rently has se­ven le­vels from 10% to 39.6%, is to be re­du­ced to th­ree le­vels (10%, 25% and 35%). The stan­dard de­duc­tion for in­di­vi­du­als and mar­ried cou­ples is to be rai­sed from the cur­rent USD 6,350 and USD 12,700, re­spec­tively, to USD 12,000 and USD 24,000, re­spec­tively. The al­ter­na­tive mi­ni­mum tax (AMT) is also to be eli­mi­na­ted. This cur­rently pro­vi­des for an al­ter­na­tive ba­sis for a hig­her ta­xable in­come, which is sub­ject to a lo­wer tax rate (28%).
 
The de­tails of the tax re­form are to be de­ci­ded by the pro­per com­mit­tees of the US House of Re­pre­sen­ta­ti­ves and the US Se­nate. The coun­ter-fi­nan­cing of the re­form plans will also have to be cla­ri­fied.

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