Impact of Trump Administration Tax Reform on Cross-Border M&A
President-elect Donald Trump is gearing up for his return to the White House with Republicans taking control of both the US Senate and the US House of Representatives. This sets the stage for significant tax reforms, similar to the Tax Cuts and Jobs Act of 2017 (TCJA), which could have a big impact on cross-border mergers and acquisitions.
One of the main areas of focus for Trump is extending the expiring tax provisions of the TCJA within his first 100 days back in office. This could involve maintaining incentives like the bonus depreciation provision, which allows businesses to deduct a large percentage of property costs upfront, making capital investments more attractive. This can be especially beneficial for non-US buyers looking to acquire US businesses with hard assets that qualify for bonus depreciation.
Trump is also considering a research and development (R&D) expensing provision that would encourage innovation by allowing immediate deductions of R&D costs. Additionally, easing interest expense limitations and retaining provisions like foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) could further support cross-border M&A transactions by providing a stable and favorable tax environment.
Proposed tariffs under the new administration could also impact M&A activities. Tariffs on imports, especially those from countries like China and Mexico, could increase costs and potentially lead to retaliatory tariffs. This could make foreign acquisitions less attractive, creating uncertainty for multinational corporations engaging in cross-border deals.
Furthermore, Trump’s plan to lower corporate tax rates, aiming for a 20% rate and a 15% rate for American-produced goods, may make US companies more appealing for acquisitions due to enhanced profitability and reduced tax burdens. However, the potential decrease in the value of net operating losses (NOLs) might prompt companies to utilize them quickly before the rate cuts take effect.
In conclusion, Trump’s tax reform proposals could have a significant impact on cross-border mergers and acquisitions by reshaping the tax landscape and influencing the attractiveness of US companies as acquisition targets. Keeping an eye on these developments will be crucial for businesses involved in international transactions.
