In just a matter of weeks since the inauguration of Donald Trump as the 47th president of the United States of America (US), he has already signed multiple executive orders, some of which could have a significant impact, not just on the US tax landscape, but on global tax policy.

Of course, many of Trump’s policy objectives were well documented through the presidential campaign, although tax policy certainly took a back seat this time around when compared to the issues debated in the run up to the 2016 US election, when Trump first took the Oval Office.

Key tax policy objectives

So what are the key tax policy objectives for Mr Trump, what is the likelihood that the resulting measures will be passed by the House of Representatives and the Senate, and what impact could this have here in the UK?

If you cast your mind back to 2017 you may recall the Tax Cuts and Jobs Act (TCJA), which was a significant overhaul of the US tax system, significantly reducing taxes for many individuals and businesses. It also introduced a number of protective measures to preserve the US tax base for companies with intangible assets held overseas, for example the Global Intangible Low Taxed Income (GILTI) regime and Base Erosion Anti-Abuse Tax (BEAT).

It seems likely that low taxes and protective measures will be a theme repeated in Trump’s second term as president.

Expiring legislation

Due to the way in which the TCJA was passed (as so-called ‘reconciliation legislation’, which is required to conform to the Byrd Rule that prohibits such bills from raising the US federal government deficit beyond a 10-year budget window), many of the TCJA provisions are due to expire at the end of 2025. Absent any action, many individuals and businesses will see tax rises, with an estimated cost to US taxpayers of $4tn over the next 10 years.

Individuals would be hit hardest by expiration of the TCJA provisions, through a decrease in standard personal tax deductions and changes to child tax credits. However, businesses would also be impacted and there are a number of areas that will need to be considered, including:

• Bonus depreciation – 100% depreciation for certain capital investment is due to be phased out by 2027.
• Pass through entity income deduction – sole traders, partnerships and ‘S-corporations’ will no longer be able to deduct up to 20% of ‘qualified business income’ when calculating their taxes.

Republicans have been supportive of maintaining the current tax status quo and restoring 100% bonus depreciation and capital intensive businesses in the US (eg manufacturing) are therefore likely to benefit.

Other potential changes to the US tax regime

As well as those expiring TCJA provisions, there are other areas where we could see changes and/or the restoration of more favourable tax treatments:

• Research and Development (R&D) full expensing – under the current US regime, R&D costs are capitalised and amortised over five or 15 years, depending on whether the costs represent domestic or international R&D spend.

  There appears to be strong support to restoring full expensing for R&D, which would be welcome news to many business sectors, particularly the life science sector.

• Interest limitation rules – under the current regime, business interest expense is deductible up to 30% of adjusted taxable earnings before interest and taxation (EBIT). Prior to 2021, a more favourable deduction up to 30% of adjusted taxable earnings before interest, tax, depreciation and amortisation (EBITDA) was available.

  There is also strong support for restoring the more favourable adjusted taxable EBITDA calculation method.

• Corporate tax rates – it has been widely publicised that Trump would like to reduce the main rate of federal corporate income tax to 20% and go further for those who manufacture in the US, by introducing a 15% tax rate.

  This reduction in corporate income taxes for manufacturers is the ‘carrot’ to the tariff ‘stick’ strategy that Trump deployed through the campaign trail and has already sought to enact for imports from Canada, China and Mexico, and on all steel and aluminium imports, through executive orders.

Since changes to these regimes will have significant associated costs, their inclusion within any 2025 tax reform bill will be subject to much debate. It is expected that many of these tax cuts will be funded through the tariffs being introduced, although whether that proves to be the case remains to be seen.

Issues for businesses with US and UK interests

However the US tax landscape ultimately changes, businesses with interests in the US and UK should aim to be well prepared and should start to consider, where relevant:

• the GILTI impact of returning to full expensing for R&D taking place in the UK;
• how benefits could be available from an increased interest deduction in the US, including reviewing intra-group lending arrangements; and
• new and relocated manufacturing functions, including whether opportunities exist to increase/expand US manufacturing activities to benefit from the expected reduced corporate income tax rates.

Finally, there is Trump’s attitude towards the OECD BEPS project and two pillar solution to address the tax challenges arising from the digitalisation of the global economy, which could have significant implications for UK businesses. The president’s OECD Global Tax Deal Executive Order states, “the Global Tax Deal has no force or effect” in the US. It also instructs US officials to consider protective measures that could be deployed by the US against foreign countries that have tax rules that are, “extraterritorial or disproportionately affect American companies.”

This list of protective measures has been requested to be completed within 60 days and could include imposing significant additional US taxes on foreign owned businesses operating in the US, or additional withholding obligations on payments made to those foreign jurisdictions.

We’ll need to wait for more information on this, but Trump is certainly looking to bring in a new era in the global tax landscape, moving away from multilateral agreements that have been established over the last 10 years, towards unilaterally imposed tax policy.

For more information, please get in touch with Duncan Beckwith or your usual RSM contact.