ACCOUNTANTS, whether on the boards of large corporates, or advising small business clients, are scratching their heads and furrowing brows following the shock victory for Donald Trump in the 2016 US Election.
Accountancy Age has rounded up the thoughts and reactions of the UK accounting profession 24 hours on from the result. Will Trump’s appointment impact UK business, and if so, how? Is there a positive spin? Or should we keep our heads down and focus on mitigating Brexit?
Peter Duff, partner at Morisons and vice-president of the UK200Group, said: “A president with no political experience, or in international politics, who is viewed with scepticism by the markets, will create further uncertainty.”
The administration of Brexit; taxation; and technology are key areas where Trump’s appointment could impact UK business
Administration and Brexit
With plans for Brexit still being debated and discussed in Parliament, any presidential change – particularly where the rhetoric has been protectionist – is an additional worry, which is bad for business. This business community ‘thrives’ on certainty and now we have many doubts, said Tim Watkins, managing director of member firm Randall & Payne, but there are trade opportunities.
“A victory for the Republicans may mean we are nearer the front of the queue for a post-Brexit trade deal but perhaps we can expect an element of isolationism on the part of the US going forward.”
Others see Trump as a breath of fresh air, who will revitalise the administration of politics. “Career politicians who invent policies and rules for everyone else ‘feel the wrath’ of the voters, just like Brexit,” stated Charles Olley, partner at Price Bailey. A lot of ‘waste’ could be trimmed from both administrations and “Trump will be able to point Philip Hammond at some of ours”.
Stephen Hemmings, corporate tax partner at Menzies, said: “Having set a timetable for Brexit, the UK could benefit from independent control over its fiscal rules in the future, there is an opportunity to put in place measures that could encourage more international companies to locate here. If the US market opts for an ultra-low corporate tax rate, the UK may wish to match or even undercut it. Free from EU State Aid restrictions, the UK government could also consider extending current incentives offering tax-relief for innovation.”
Trump and Tax
Trump has previously stated that he plans to reduce the corporate tax rate in the U.S to 17% by 2020, mirroring the UK’s proposals. As Hemmings pointed out, a UK free of EU restrictions could pursue tax competitiveness with the US, or outdo it.
Hemmings, added: “This is potentially good news for UK-based tech companies that may be seeking to expand into the US in the future, particularly if the rate drop is as drastic as anticipated (potentially more than halving to 15%).”
Many US nationals have been accused of engaging in tax avoidance in Europe. But with Trump’s plans to lower the domestic corporation tax, this ‘could’ lead to companies engaging in less tax planning in the UK and Europe, as they would be disincentivised to shift funds out of the jurisdiction across the pond.
“These reforms would reduce avoidance incentives and remove part of the mechanism for aggressive tax planning,” said Kevin Phillips, international tax partner at Moore Stephens.
This move could come at a price for the UK, though, particularly if a more competitive US tax regime sees US businesses ‘staying at home’ to undertake M&A deals. “It remains to be seen whether U.S. companies would engage in less overseas M&A if the tax rates for repatriating earnings were to drop,” Phillips added.
The situation is nuanced, of course. Offshore US capital has often been used to fund the acquisition of UK and European companies. A lower domestic corporate tax rate would lead fewer US companies to buy European rivals.
Phillips continued: “The OECD has worked hard to counter tax avoidance or ‘base erosion and profit shifting’. It has been argued that this has been mostly targeted at US multinationals. If the US corporate tax rate does go down, then some of the need for the BEPS changes goes away.”
High-tech, and ‘green’, trade
The US could harden its position on the importation of high-tech and software products into its market – areas which would hit the UK hard.
In terms of trade, not only with the trade deals of the UK and the EU since the Brexit result, but now additionally with trade possibly affected with the UK and the US, there could be many losses and opportunities lost. An example of this is software and technological advances which will be more difficult for the UK to acquire.
“A more protectionist president won’t seek to reduce barriers, he will seek to increase them. This will set back technological advances by years and harm much of the intangible capital the UK has to offer,” said Liz Ward, principal at UK200Group member firm Virtuoso Legal.
“I also suspect that a Trump administration will undermine real progress in green technology generally. Trump has already dismissed global warming and there will be no encouragement of reducing carbon emissions under his administration. Again, this is another area where the UK has leading scientific advancement to offer.”
James Abbott, managing director at Abbott Moore and president of UK200Group, concluded: “I am concerned by the implications of having such a significant part of the USA that adamantly disagrees with the outcome, it must affect behaviour.”
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