US based UK companies expected to face new tax challenges under Biden

With a new tax regime expected in the US, UK companies will be braced for change, says Laurence Field, partner at Crowe UK.

“Businesses will need to adapt to what politicians say. The reality is, there is never a good time to change tax systems from a business point of view,” says Field.

In 2017, US Congress issued the Tax Cuts and Jobs Act (TCJA), which decreased the corporate income tax rate from 35 percent to 21 percent – a percentage below the OECD member countries’ average. But president Joe Biden’s $2trn plan involves increasing the corporate tax rate from 21 percent to 28 percent.

Crowe UK has been comparing Biden and Trump’s tax policies throughout the elections.

Field says UK businesses that look to expand to the US for the first time will face significant uncertainty on what the tax environment will be – an added burden to the rise in corporation tax, particularly as UK corporation tax has been set at 19 percent since 2015.

“If it goes back up to 28 percent, that might make UK companies look and think a little bit harder about how they’re operating in the US. There are also UK companies that are subsidiaries of US companies. There’s a desire to repatriate certain activities back in the US, and there could be tax credits available for it, but this could be a challenge,” explains Field.

The rise in corporation tax will also have some knock-on effects as other taxes that Trump introduced were also designed to penalise US companies for having activities outside the US.

“Those taxes will automatically increase when the headline rate for corporate income tax goes out. It’s a little bit of a double whammy to try and encourage people to bring back activity in the US,” adds Field.

Another of Biden’s tax proposals aims to establish a Made in America tax credit to revitalise “existing closed or closing facilities, retooling any facility to advance manufacturing competitiveness and employment,” in a bid to bring jobs back to the US, expand the job-creating effort and also extend the manufacturing payroll.

“There are things there that will penalise people who are offshoring jobs, but it gives them benefits if they then reassure them. That’s what Trump is trying to achieve as well,” says Field.  “In the TCJA, one of the policies that Trump wanted to do is to bring jobs back in the US. It will be interesting to see whether Biden’s version of trying to do this will be any more successful than Trump’s.”

Another tax proposal requires corporations that declare profit over $100m to pay a minimum of 15 percent of those booked profits, regardless of their tax liability – a new policy that aligns with the OECD’s goals.