Mixed Results From US Tax Changes
In the bizarre and esoteric world of taxation, something good – say a 14 percent corporate tax cut – can also be something bad. Just ask the string of companies which have reported multi-billion-dollar hits to their fourth-quarter and full-year 2017 results because of the accounting effects of the United States Tax Cuts and Jobs Act. AIG and GM, for example, reported one-off accounting charges totaling approximately USD14bn last week, taking both companies into the red.
Indeed, in this topsy-turvy world, something you’d think under normal circumstances would be undesirable, like a financial loss, actually becomes an asset. In this case, the ability to use past losses to offset future income, thus enabling the taxpayer to pay less tax. And, as if to underline the point that there’s rarely anything straightforward where taxation is concerned, the value of these deferred tax assets (DTAs) is in direct correlation with the rate of income tax. In other words, the higher the tax rate, the more they are worth. So there you have it. In an almost gravity-defying way, tax cuts can sometimes cost taxpayers, as well as benefit them.
The pain of devalued DTAs is, however, expected to be experienced only in the short-term. Unsurprisingly, companies expect to benefit from a substantially lower rate of corporate tax over the long-term. But not overwhelmingly so. There’s plenty of devil in the detail of the TCJA. Many companies expect the benefits of the reduced corporate tax rate to be a least partially offset by an acronym soup of anti-avoidance provisions, particularly BEAT (Base Erosion Anti-Abuse Tax) and the tax on GILTI (Global Intangible Low Tax Income). Indeed, I often wonder whether there’s a staffer in Congress whose sole job it is to come up with particularly fitting legislative acronyms. For if taxpayers aren’t careful, they could indeed get beaten by BEAT, and made to feel guilty about their GILTI.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look