8 | BUSINESS AND SOCIETY freshfields.com
Donald Trump's proposals include a tax incentive to
bring cash otherwise trapped overseas back into the
US, and a rate cut designed to stimulate the domestic
economy and remove the incentive for inversions.
Even before the election the US had not signed up
to elements of BEPS. And many in Congress view
the EU's state aid investigations as evidence of
anti-Americanism. But cranking up the heat on
interstate tax competition threatens to undermine
the co-operation needed to embed tax reforms
on a global basis.
Falling tax rates threaten the business/society
relationship and put pressure on corporations to
articulate their societal contribution beyond their
payments to the state. The same will apply as
governments loosen the regulatory shackles.
Like the Brexiteers, Trump the candidate gained
traction by pledging to boost growth by cutting
regulation, and his appointment of Carl Icahn as a
special adviser on regulatory reform suggests less red
tape in future for domestic companies. Again this
appears at odds with the anti-elite surge that put him
in power, but Trump, too, seems to be banking on
the fact that an expanding economy will quell any
backlash. However, corporations will need to respond
carefully - failing to live up to society's expectations
invariably results in activist disruption, consumer
rejection, investor withdrawal and employee pressure.
Despite populists claiming to be implementing
'the will of the people', it's worth remembering
that both the Brexit vote and the US election split
the UK and US down the middle.
President Trump's pitch is that ordinary Americans
will prosper with a commander in chief who puts US
interests first ('bellicose isolationism' in the words
of the FT's Philip Stephens). Many expect his policies
to create growth (although America's manufacturers
will find the strong dollar a challenge) and if the
benefits trickle down then the relationship between
business and society may improve.
US corporate profits
Source: Gabriel Zucman, Journal of Economic Perspectives
(cited in the Financial Times)
One of Donald Trump's principal targets is offshore cash.
The amount of money made by US businesses from their direct
investments overseas has been rising for the past 30 years -
and the share of it made in low-tax jurisdictions has also been
growing. In Europe this has caught the attention of the EU
Commission and is what drove the development of the BEPS
proposals, which aim to tie taxation more closely to the places
where profits are made. It is also the motivation behind Donald
Trump's tax reforms, which aim to bring US corporates' offshore
cash back to the US. While the narratives differ - BEPS is
ostensibly about corporations paying their 'fair share' while
Trump is more interested in job creation - both are signs
of governments sending the message that borders matter.
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