Trump’s tax reforms could shake up the global M&A environment, warns tax consultancy Taxand

Despite the UK’s Brexit vote and the hesitancy with which several world leaders welcomed US President Trump’s appointment, global cooperation has been a key trend in tax over the past year according to consultancy firm Taxand.

However, Trump’s mooted tax reforms and reviews could shake up the global mergers and acquisitions (M&A) landscape, Taxand has warned.

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These could have consequences from changing the way transactions are structured to making a company reluctant to undertake a deal at all.

“One of the actions taken by the new administration is to require a review of significant tax regulations promulgated over the last year,” said Christopher Howe, managing director of Taxand.

“Some of these are of particular importance to M&A in general and private equity in particular.”

One of the significant measures being reviewed is a regulation which would treat certain debt instruments issued between related corporations as equity rather than debt for tax purposes.

This measure was designed to redress the imbalance between debt and equity taxation, since debt has benefits as businesses can deduct their interest payments. Many people argue equity – which is effectively double-taxed – should be afforded similar privileges. But the President may not agree.

Trump will also review the rules issued by former President Obama to crack down on corporate inversion transactions, where US businesses move their legal addresses abroad to cut their tax bills through mergers with foreign companies.

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“Review of these regulations is part of a larger project to reduce the burden of government regulation on business. As a result, we may see less new regulation along similar lines in the future under the current administration,” said Howe.

Despite this, the report points out that cooperation between countries has led to most of the changes in the tax environment recently.

This has partly been due to the Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (Beps) initiative, which involved collaboration between more than 100 countries to iron out tax avoidance loopholes.

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