CEOs have welcomed Donald Trump’s move to undo anti-inversion rules designed to discourage U.S. companies from moving to lower-tax countries, hailing it as an indication the administration is serious about lightening regulations.
The direction of the president’s broader plans for corporate taxes, however, remains uncertain ahead of his promised landmark announcement on the subject due Wednesday.
Introduced by the Obama administration, the more specific anti-inversion rules discourage “income stripping”, where businesses would establish a foreign headquarters, lend money to a U.S. subsidiary and claim a tax deduction on profits used as interest repayments.
The rules also make it harder for U.S. companies to buy smaller offshore rivals and contribute to the failure of a proposed mega-merger between Pfizer and Allergan.
Trump on Friday signed an executive order to examine scrapping or weakening the regulations. To be sure, the president also hopes to encourage American businesses to pay more tax at home by lowering the country’s headline corporate tax rate.
CEOs including Apple’s Tim Cook have complained that, at 35%, America has one of the world’s highest rates—though some businesses can claim deductions to get their own rate down. Many business leaders also were concerned that Obama’s anti-inversion rules were an overreach that affected myriad routine transactions conducted by multinationals.
“This action is a welcome sign of the Trump administration’s commitment to listen to the business community’s concerns about excessive burdens and unintended consequences resulting from overly broad regulations,” EY CEO Mark Weinberger said. He was speaking in his capacity as head of tax and fiscal policy for the Business Roundtable, a peer group representing CEOs from America’s largest companies.
“While removing unnecessary regulatory burdens is a step in the right direction, comprehensive tax reform is the ultimate fix for an outdated tax system that hamstrings the U.S. economy and job creation,” Weinberger said.
On broader tax policy, Trump said on Friday that he would announce a “massive” tax cut for Americans this Wednesday, though some of his inner circle were taken aback given continued wranglings over the details of any proposals. Trump hammered home his plans Saturday, posting on Twitter: “Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.”
Mick Mulvaney, director of the Office of Management and Budget, said yesterday that full details may not come until June. “What you’re going to see on Wednesday for the first time is, here’s what our principles are, here are some of the ideas we like, some of the ideas we don’t like, and we can talk about that more if you want to,’’ Mulvaney told Fox News.
CEOs will be watching closely to see if the president drops a controversial House Republican plan what would levy a 20% tax on imports and lighten the tax burden on exports.