What is the international reaction to the latest US Tax Reform by President Trump? Is there any Concern for worldwide tax competition?


Cross-posted from Quora

by John Richardson

Contrary to the early answers to this question, there is (internationally) a great deal of interest in U.S. tax reform and a great deal of reaction to it. All you need do is read the London Financial based Financial Times (and other publications) to read about this. A ten second search reveals (by way of example):

The “international interest” has been focused on (but not restricted to) three key areas:

First, the reduction in corporate tax rates (falling from 35% to 21%). Countries around the world compete for investment capital by offering lowering tax rates. Higher U.S. tax rates encourage companies to earn their profits in countries with lower tax rates. Lowering the U.S. corporate tax rates will lessen that incentive.

Second, there has been and continues to be concern that U.S. tax reform has NOT considered U.S. tax treaty obligations (non-discrimination clause, etc.) and could result in the USA violating its WTO (and possibly NAFTA) obligations. (At one point the Republicans were considering a “border adjustment tax” – disallowing a U.S. tax deduction if a component was purchased outside the USA.) The “border adjustment tax” was viewed negatively by Canadian Prime Minister Trudeau.

Third, U.S. tax laws imposes “worldwide taxation” on many residents of other countries. This is the result of what a U.S. tax system that defines U.S. “tax residents” in a way that includes certain individuals who are “tax residents of other nations”.

ALL individuals who are NOT “nonresident” aliens. Leaving aside the legal jargon, the simple fact is that the United States is attempting to impose “worldwide taxation” on the residents of other countries.

It is disappointing that the United States continues its obsession with defining the “tax residents” of other nations as U.S. tax residents”.

So, there are just a few areas of concern and reaction.

Epilogue …

Those interested in a more academic response might read:


The author concludes that:

“The underlying problem is that the international provisions have been crafted on the unstated assumption that the U.S. is the only country whose tax policies matter. That is unfortunate not simply because it is untrue but because it holds the potential for serious harm to U.S. interests. It is a shame to see the country fritter away a position of world leadership in a field as important as international taxation – a field that has gained immeasurably in international recognition as a result of BEPS and other developments in the OECD, the European Union, and at the UN. The fact that the U.S. Congress pretended for years that the BEPS project did not exist is emblematic of the attitude that is now manifest in the new international provisions. Our companies are likely to pay a price for the decline in U.S. leadership but, make no mistake, it will ultimately have negative influence in many corners of our national life.”


About the Author John Richardson

John Richardson
Toronto citizenship lawyer: FATCA U.S. tax + renunciation of citizenship
Lawyer 1982-present
B.A., LL.B., J.D. (Of the bars of Ontario, New York and Massachusetts)
Co-chair of the Alliance for the Defence of Canadian Sovereignty and the
Alliance for the Defeat of Citizenship Taxation

Lives in Toronto, ON