The United States have demonstrated a great fiscal stability in recent years. However, when the United States decide to reform their tax system, it is a revolution: the reduction of the federal corporate tax rate to 21%, the establishment of a partial participation regime (an exemption replacing the worldwide tax system), the tax base expansion (interest deduction limitation, etc.) and the introduction of anti-base erosion measures such as the Base Erosion Anti-Abuse Tax (BEAT) and the Global Intangible Low-Taxed Income (GILTI).
For example, the BEAT covers the billing of services, interests and intangibles made by the related entities outside the US for the American entities and imposes a special tax on these payments (5% the first year, 10% the second year and up to 12.5% afterwards). It should be noted that the billings of finished products or elements that are participating in the production in the US are exempted from this tax.
As to the GILTI, it taxes in the United States all the margins localized in the subsidiaries of American groups that exceed 10%.
This tax reform gives the United States an opportunity to tax any income that it considers to be related to the US activities, thus making illusory an important part of the tax strategies used by the US groups these years (migration of intangibles, cost sharing, tax inversions, etc.).
The US tax reform is founded on quiet mechanical principles (typology of costs, level of offshore profit) that are not fundamentally based on the arm’s length principle. These new American principles diverge in this from the principles set out by the OECD as part of the BEPS project, resulting in the accrued incertitude for the groups and the increased double taxation risk.
The groups now have to apprehend the impact on their situation. From the transfer pricing point of view, the European groups should now think about the constituent elements of the BEAT to understand how to limit the eligible flows (margined services, royalty fees, etc.) through a better structuring of intragroup flows. The loan structures should also be reviewed in order to mitigate the impact of partial non-deductibility of interests. These evolutions must be implemented while maintaining a coherent and balanced transfer pricing policy in order to avoid creating risks in other countries around the globe.
