Attorney Janathan L. Allen Discusses Effects of Trump’s Corporate Tax Reform

In light of a January 24, 2017, article from The Hill stating that President Trump and Congress are considering corporate tax reform, particularly for international transactions, tax attorney Janathan L. Allen is educating business owners on the effects of this plan. “American businesses are bracing for a tax scheme that could change some of the fundamentals of international business and associated Effective Tax Rates (ETRs),” said Allen in a recent blog. “The majority party in Congress favors a ‘destination-based’ cash flow tax. Are we really moving toward a Value Added Tax (VAT) model that has increased the cost of doing business for many business entities around the globe?”

Under the proposed new international corporate tax structures, Allen says expenses would in effect become “border adjusted” so that deductions are based upon whether a component, good or service was exported or imported. Under this new proposal the cost of creating exported goods and services is deductible, but the cost of goods or services that are imported to create products and services are not deductible.

“So if a San Diego or U.S. multinational business imported products or components it would not be able to deduct the cost of those goods from the income generated by reselling them or integrating them into a product or service offering here in the United States,” said Allen. “However, if that same company exports goods and/or services the revenue received from a foreign source might not be taxed as heavily, but the cost of making those goods and services here in the U.S. would be deductible. Simply put, the new international corporate tax structure is designed to increase production of goods and services here in the U.S., while discouraging imports.”

Another goal of the new tax proposal is to eliminate transfer pricing issues for the IRS, tightening controls over how affiliated companies transfer goods and services between one another in an attempt to manipulate or reduce taxable events. “International business tax policy would substantially and forever change,” concluded Allen. “Carried to its logical conclusion, the ‘destination-based’ cash flow tax model will substantially increase the price of all foreign products and services. If a business person cannot deduct the cost of the product when calculating profit – and the tax that must be paid on profit – the amount paid in taxes dramatically rises. The U.S. business has no choice but to drastically boost the price to offset this.”

To read Allen’s blog in its entirety, please visit www.allenbarron.com/new-international-corporate-tax-discussions-unfold-in-us-congress/.

About Janathan L. Allen, APC 

The law practice of Janathan L. Allen, APC provides insightful business, legal and tax-related services for San Diego and U.S. businesses which require experienced and insightful counsel in order to remain competitive in an ever-changing U.S. and global business environment. The firm helps clients to assess the impact of changes in U.S. business law, tax codes and regulatory requirements, in addition to legal services such as business contract, business formation, employment and operational legal services. When combined with the business advisory, accounting and tax preparation services of Allen Barron, the firm provides a single-source business partner resulting in a more extensive and valuable advisory and service offering while leveraging economies of scale. Its main offices are located at 16745 West Bernardo Drive, Suite 260, San Diego, CA 92127.

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