As proposed by the House Republicans, the border adjustment tax would revamp how businesses are taxed in the United States by replacing the income tax with a cash flow tax. The tax rate would vary from 20 to 25 percent.
The implications of the border adjustment tax would be far reaching. For companies that export, the United States would become a tax haven. For companies that rely on imports, the tax may be damaging. As drafted, the tax conflicts with many U.S. income tax treaties and would likely draw strong condemnation from our trading partners. A challenge from the WTO is almost certain. Countermeasures may also be taken directly by other countries and could result in significant trade friction.
It’s important to note that the current border adjustment tax plan is still just a proposal with many details that still need to be finalized and questions that need to be answered. Stay tuned, and contact your Plante Moran tax advisors with any questions on tax reform proposals and how they may impact your business.