Expert says Trump’s tax reform plan may cause US-Australia revenue disputes

US President Donald Trump announced his plans to cut the corporate tax rate to 15 percent, something that investors are reportedly not so happy about because details were not immediately made available. US Vice-President Mike Pence said the tax reform plan will have direct benefits for Australia, but some has pointed out possible US-Australia revenue disputes.

Chris Weston, chief market strategist of IG Group Limited, said Trump’s tax plans, which he described as a “big announcement,” was an outline of what had largely been leaked or highly speculated on. “The question of how these spending initiatives will be offset is still what the cynics will be pointing to,” he said in a press release. Weston mentioned he thought the tax reform would increase what is the “worrying trajectory” for the United States over the medium to longer-term.

Chartered Accountants tax leader Michael Croker said the one-page document that was disclosed by US Treasury Secretary Stephen Mnuchin and Director of the National Economic Council Gary Cohn is not a plan that can be evaluated in a meaningful manner. He pointed that shall the 15 percent rate is implemented, the issue would be whether the US tax rate will restrain use of low tax jurisdictions to park offshore profits. Croker said that would depend on the aspects of Trump’s international and domestic law changes.

If Ireland and Singapore, which are both traditional low-tax countries, are no longer widely used by US multinationals, the tax adjustments by the Australian Taxation Office against US-based companies are likely to result to tax disputes directly between the ATO and the IRS, Croker explained. He has also mentioned about hearing from some US colleagues that the Border Adjustment Tax becoming “too hard politically.”

"Inbound investors from the US are already seeking ATO and professional guidance on how they can undertake economic activity in Australia within the ATO's so-called “ swimming between the flags ” approach," Sydney Morning Herald has quoted Croker. Currently, the Down Under has anti-avoidance laws, such as the Multinational Anti-avoidance Law (MAAL) and the Diverted Profits Tax.

As for the market reaction, Weston said it could be best described as a modest “sell the rumour, buy the fact,” in the US bond market. He cited that gold has found some buying support and forecasted that energy might see a slight downside.

Pence previously said the US tax reform will make the strongest economy. He assured that it would be beneficial for the American people, American workers and the Australian economy.