With tax overhaul approaching, US manufacturers weigh their options
Altering the supply chain might create an advantage, but the impact on operations must be factored in
As discussions surrounding tax reform accelerate in Washington, manufacturers are considering the impact of the House Republican Blueprint. A reduction in the tax rate from 35% to 20% would clearly benefit business, and many manufacturers would be helped by a move to a territorial tax system. The Blueprint’s controversial border tax adjustment feature would benefit some manufacturers and hurt others. Understanding how this proposal could affect taxes and costs is an essential first step.
For insights on the potential impacts and what to consider in making related decisions, read below and download our article.
Changes for industrial manufacturers
Among the Blueprint’s corporate proposals, the following two would clearly benefit many US manufacturers:
- A reduction in the corporate tax rate from 35% to 20% to help increase competitiveness around the world.
- Replacing the current US worldwide tax regime with a territorial tax system to help level the playing field for many US companies.
Two other provisions of the Blueprint—when netted together—could be favorable or unfavorable, and the fifth proposal—the so-called border adjustment provision—has the biggest implications for the supply chain footprint.
Border adjustability explained
Border adjustability has goals that are in keeping with the new administration’s “America First” philosophy. As currently envisioned, this proposal would prevent US companies from taking a deduction for the cost of raw materials or finished products that they import into the United States. The other key part of border adjustability—designed to eliminate disincentives for US companies to manufacture domestically—is an exemption for receipts earned on the sale of products exported from the United States. Domestic companies will need to consider the implications of relocating their sources of supply to the United States, as well as the implications of building and exporting their products from the United States to foreign markets instead of manufacturing locally.
Decision-making in context
While US tax law is obviously important in decisions involving the supply chain, taxes have to be weighed against other operational factors and broader macroeconomic changes. Additionally, considerations such as the available workforce in a potential new location and the benefits of reconfiguring their operations in terms of their foreign income tax savings also need to be considered.
The run-up to tax reform
In determining how to proceed with regards to tax reform, companies should keep the following in mind:
- Don’t expect simple answers
- Model the scenarios
- Wait for clearer indications of the likely law before changing your footprint
- If you can’t wait, analyze your footprint options exhaustively
Explore more insights on the new administration’s policy agenda and how it could affect your business.
Contact us
John Livingstone
US Industrial Products Tax Leader
Tel: +1 (860) 241 7224
Email
Robert McCutcheon
US Industrial products industry leader
Tel: +1 (412) 355 2935
Email
