Will the Border Adjustment Tax survive?

by Bill Henson on February 24, 2017

If you’ve been anticipating quick enactment of tax reform proposals, you may be frustrated. One key element of the House GOP tax reform proposal has significantly contributed to the delay. The border adjustment feature of the GOP proposal has polarized taxpayers and caused concern among U.S. trade partners. As currently configured, the border adjustment denies a deduction for payments made to non-U.S. suppliers while exempting revenue from non-U.S. customers.

In Washington, Congressmen Paul Ryan (R-Wisconsin) and Kevin Brady (R-Texas) have steadfastly supported the border adjustment feature. They’ve received a great deal of support from U.S. manufacturers with significant export revenue such as Boeing and GE.

However, Senate Majority Whip John Cornyn (R-Texas) said in an interview with Bloomberg that the border adjustment tax is on “life support” and indicated that there wasn’t broad support in the Senate. Other U.S. multinationals also oppose the tax, including most companies in the auto, oil, and retail sectors.

President Trump indicated some early opposition, calling the tax “too complicated,” but hasn’t said much recently. Indications are that Trump’s staff is divided; chief strategist Steve Bannon is in favor while chief economic adviser Gary Cohn is opposed.

There is, however, one element of the border adjustment tax that just might allow it to survive, if perhaps in diminished form. Whatever form tax reform ultimately takes, lawmakers have pledged that it will be revenue neutral — that it won’t diminish U.S. tax revenues. A recent study from the Office of Tax Analysis indicates that the border adjustment would create enough net tax revenue to allow for an overall rate reduction, so the border adjustment tax could be revenue neutral. Can this feature “trump” the other considerations fueling opposition? Time will tell.

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Recently, amendments related to general rules and criteria in Foreign Trade matters for IMMEX companies, went into effect as of Jan. 31, 2017.

While not an all-inclusive list, some of the new requirements for IMMEX companies temporarily importing sensitive goods*, are the following:

  1. Provide information of the sensitive goods to be temporarily imported and the finished goods to be exported.
  2. A special report issued by a Mexican Registered Public Accountant containing certain required information.
  3. Detail on the companies to whom the finished products will be later transferred.
  4. Sensitive goods may remain in Mexico under temporary importation for a maximum of four months.
  5. Companies who have been granted a VAT Certification by the Mexican tax authorities would be exempt from obtaining the authorization to import sensitive goods under the new regulations.

* Sensitive goods: Steel, iron and metal castings, textiles, aluminum among others

For more information or assistance in compliance with these new requirements, please contact our international consulting team.

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IRS announces new audit campaigns

February 17, 2017

While the White House moratorium on Federal regulations has caused a slight pause in the development of tax reform, it doesn’t mean the wheels of tax policy will come to a complete halt. In fact, one of the first changes we’re seeing is with IRS audits. Historically, IRS business audit exams were typically conducted by […]

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What does the proposed border adjustment tax mean to businesses?

February 10, 2017

There’s been a lot of talk lately about tax reform, and the “border adjustment tax” has been a particularly hot topic. 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 […]

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Final regulations for foreign financial assets issued

February 3, 2017

In February 2016 the IRS released final regulations under Treas. Reg. Section 1.6038D-6. The regulation applies to domestic entities, and beginning with the January 2016 tax year, requires certain corporations, partnerships, and trusts to file Form 8938 with their U.S. income tax returns. Under the new regulation, Form 8938 (which is used to report specified […]

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Reduced income tax rate effective due to Mexico repatriation program

February 2, 2017

The Mexican government included a new repatriation program in its presidential decree issued on January 18, 2017.  The program reflects Mexico’s efforts to encourage investment in certain strategic areas within Mexico and to incentivize Mexican companies to repatriate their liquid assets.  While not an all-inclusive list, a summary of the repatriation program is as follows: […]

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Final Section 367 regulations impact check-the-box planning and foreign restructuring

January 18, 2017

On December 16, 2016, the IRS released the final regulations under Section 367 that address the tax consequences of outbound asset transfers. The impact of these regulations could change how businesses plan for foreign entity restructurings and check-the-box elections. The final regulations are effective for transfers occurring before September 14, 2015, and for transfers taking […]

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Foreign Corrupt Policies Act: Are you in compliance?

January 16, 2017

The Foreign Corrupt Policies Act (FCPA) prohibits companies from bribing foreign officials. While it’s been in place since 1977, the Securities and Exchange Commission and the Department of Justice have accelerated the pursuit of companies in violation. Consider the recent Biomet case that resulted in a $30 million penalty — and they’re not the only […]

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What does Ford’s announcement mean for internationally minded businesses?

January 3, 2017

Just yesterday, Ford announced that it’s cancelling plans to build a new plant in Mexico, instead opting to invest $700 million in Michigan, creating 700 new jobs. As CNN Money points out, this is surprising—“a major U-turn for Ford.” While it is a “vote of confidence” in president-elect Donald Trump as CEO Mark Fields states, […]

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Final Section 987 regulations provide guidance to certain qualified business units

December 28, 2016

On December 7, 2016, the IRS and Treasury Department released final and temporary regulations to Section 987, which provides guidance on taxable income of a qualified business unit (QBU) operating in a functional currency other than the U.S Dollar. Following are the highlights: Final Regulations The final regulations closely resemble proposed regulations issued in 2006, […]

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