Trump tax cuts threaten to cost UK £18 billion as companies flee to America

The press is full of reports about President Trump’s proposals to impose tariffs on goods imported into the US. This coverage has drowned out some possible changes that could impact all businesses with interests in the US, regardless of whether they are exporting goods there.

Background

Recent UK governments have committed to the Organisation for Economic Co-operation and Development (OECD) proposals to introduce a global minimum tax rate and to charge top up taxes on activities that are taxed at below that rate. Over 40 countries have committed to follow this process.

The US has not ratified this approach, due to the difficulties of passing legislation through Congress, though the Biden administration was generally supportive.

President Trump has indicated that such taxes could be treated as discriminatory and extraterritorial to the US, as well as the digital services taxes which he believes are primarily targeted at US multinationals. If his administration concludes that is the case, he has indicated he may look to double the rate of tax on entities and individuals with US income from countries that impose these taxes. This would be done by raising the tax rate 5% a year over the course of the four year presidency, based on a current tax bill that has been introduced for consideration. Legislation needs to be passed by both Houses of Congress, and we are some way off that happening.

What is the impact?

If enacted, this boiling the frog approach, is designed to cause discomfort to overseas businesses with US activities. The higher taxes paid in the US would presumably be creditable against UK taxes but would result in the UK collecting less tax. If the overall rate exceeds the UK rate, then this would be an effective tax increase.

Companies would need to consider their compliance obligations as well as cashflows (if more tax is either withheld at source in the US or needs to be paid via a return). Alternatively, if the UK were to suspend the implementation of the top up tax, those companies that have made preparations to make the relevant reports will need to rethink their processes.

What actions should I take?

The position remains fluid. President Trump gave his officials until 1 April 2025 to draw up a list of the discriminatory taxes. There would then be a period where he may ask countries such as the UK, as to whether they are willing to amend their approach.

A wait and see position would be most logical, but businesses should start to think about the potential impact on their cash flows, ability to repatriate funds, the nature of any investments they may be considering in the US and perhaps how any US interests are structured.

For more information on anything discussed in this article, please contact Laurence Field, or your usual Crowe contact.