publications 17 August, 2017

Update in international tax – U.S. border adjustment tax

The May 2017 Tax Bulletin presented a controversial measure of the fiscal plan that the Republican Party wanted to put in place. The purpose of this measure, the Border Adjustment Tax (BAT), was to penalize imports while exempting US exports. Similarly, it aimed to make foreign service firms that bid on US contracts less competitive.

The effect of this measure was to deny the US companies a deduction for any foreign inputs or outputs (fees for services, royalties, interest paid on a loan from a foreign parent company, etc.), thereby increasing the cost of the foreign good or service, compared to the cost of the same good and service acquired from a US company.

After months of uncertainty, the Republican Party finally abandoned the idea of introducing the BAT on July 27th as part of its Joint Statement on Tax Reform, a tax reform which we are still waiting for. Foreign companies and especially Canadian companies that export significantly to the United States, can breathe a sigh of relief.

The party relied heavily on the BAT to finance the proposed tax cuts (see the May 2017 Tax Bulletin). It is expected that these cuts will not be as important as the party wanted to avoid the creation of an additional deficit.

To be continued.


Share this article