Trump Tax Plan Checks Tech Boxes

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By Michaela Ross

President Donald Trump is championing several tech industry priorities in his tax plan, but not a border-adjusted tax that has sparked criticism from the sector.

The White House unveiled a plan April 26 that would slash the corporate tax rate from 35 percent to 15 percent. The plan also includes a one-time tax cut to repatriate the more than $2 trillion in profits U.S. companies, including Alphabet Inc.'s Google and Apple Inc., are stockpiling abroad.

The proposal is the opening bid in what promises to be a lengthy debate over revamping the tax code. The tech sector is looking to prospective tax legislation as a potential area of common ground with Trump after his early moves to crack down on immigration and pull out of trade deals that contained provisions they backed.

Tech companies are among the top lobbying clients around tax issues, according to Bloomberg Government data. Oracle Corp., Intuit Inc. and Microsoft Corp. were among the most active filers on tax issues across all industries in the first quarter of 2017. The companies each spent between about $130,000 to $500,000 respectively on lobbying efforts on such issues in that quarter alone.

Tech groups such as ACT |The App Association and the Consumer Technology Association (CTA), which represents companies such as Apple Inc. and Facebook Inc., are likely to keep pushing for both a lower corporate rate and repatriation, which they say will encourage domestic investment by U.S. tech companies.

Trump did not propose a border tax on imported goods. Tech trade groups have been wary of the border-adjustment tax idea, championed by House Speaker Paul Ryan (R-Wis.), saying it may increase the cost of electronics and goods produced abroad for U.S. consumers and businesses.

Trump’s proposal aligns tech companies and the president’s goals for a more competitive U.S. economy, Tiffany Moore, CTA’s vice president of congressional affairs, told Bloomberg BNA.

‘Great Potential’

“There’s great potential given that you have a Republican White House and a Republican Congress that are all committed to corporate tax reform and broader tax reform,” Moore said. “There’s definitely an opportunity to make U.S. companies more competitive.”

Apart from a corporate tax cut, tech trade groups have also supported Trump’s plan to allow company profits earned overseas to be repatriated at a lower rate than the current 35 percent. U.S. companies, including several global tech giants, have kept profits from overseas sales abroad in order to avoid paying U.S. taxes on the earnings. Unlike most developed nations, the U.S. taxes a company’s global earnings, not just those earned from domestic sales.

Trump’s plan would allow a one-time tax cut for funds brought back to the U.S. Administration officials U.S. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn declined to specify the rate during an April 26 press conference. Mnuchin said the White House was finalizing a rate with Congress, and that “it will be a very competitive rate that will bring back trillions of dollars.” Bloomberg Government previously reported that White House officials had outlined a 10 percent repatriation tax rate.

Tech trade groups are looking for a win-win deal from a one-time repatriation tax plan. CTA president Gary Shapiro has encouraged funds from the tax to be funneled to infrastructure projects or an infrastructure bank. That’s an appealing idea to an industry that’s lobbying for any infrastructure package to include build out for broadband to support the next generation of wireless and internet technologies.

A one-time cash infusion from overseas profits into U.S. companies would also benefit small and mid-sized tech companies, said Morgan Reed, president of ACT | The App Association. A wave of repatriated profits could fund venture capital investments and acquisitions of smaller players and app developers whose success depends on larger tech companies such as Apple.

“Repatriation reform that benefits big tech companies can spark significant downstream investments for small app companies because their success is so intimately intertwined,” Reed told Bloomberg BNA.

The Information Technology & Innovation Foundation (ITIF) called for the White House to support tax credits for research and development and allowing companies to deduct the costs of investment of new software and equipment, the nonprofit technology think tank said in a statement.

Mnuchin said Trump’s tax plan would also establish a territorial system, where U.S. companies would pay tax “on income related to the U.S.” Tech trade groups such as ITI, which represents companies including Google and Amazon.com Inc., have supported a territorial system that allows businesses to be taxed where earnings occur. Companies would then avoid paying taxes on overseas profits to both the county where they were earned and the U.S.

Mnuchin and Cohn said the White House was in agreement with Republican congressional leaders about the “core principles” of the plan, and would be working out the details in the coming weeks.

To contact the reporter on this story: Michaela Ross in Washington at mross@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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