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November 11, 2020

Tax Alert: Election Impact on International Tax Planning

How a Biden presidency could affect international tax policy

by Sanjay Agarwal, Tax Practice Leader

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With economic and tax policy a primary focus during the 2020 election, the
winning candidate/party will play a central role in pushing further economic
stimulus forward and determining long-term course for recovery following the
economic fall-out from the COVID-19 pandemic.

With the Biden campaign all but wrapping up the presidential election, businesses
and individuals with overseas concerns must pay close attention to how the
proposed policies of the candidate/party will affect their total tax liability and be prepared to make any changes or updates, in some cases, during the two months
ending the 2020 tax year.

2020 Prospective Results Overview

Biden Victory | 50/50 Senate Split

In the case of a 50/50 split in the Senate, the tie-breaking vote goes to the Vice President, giving de facto Senate leadership to the party in the White House.

The Biden campaign’s proposed tax plan focuses on rolling back tax breaks and “loopholes” for corporations and high-net-worth individuals, specifically related to changes made in the 2017 Tax Cuts and Jobs Act (TCJA). Biden also proposed a number of significant tax breaks and stimulus efforts targeted at spurring growth in historically-disadvantaged communities and the renewable energy sector, while simultaneously rolling back fossil fuel industry subsidies.

Economic Stimulus
In the case of a Biden/Democratic win, it seems unlikely that an out-going President Trump will be motivated to support a new COVID-19 economic stimulus plan before leaving office. On the other hand, an incoming President Biden will likely immediately push for stimulus upon taking office, and will be successful with control over the Senate.

Biden Victory | Republican Senate Majority

Any outcome that has White House and Senate leadership at loggerheads will likely result in the blocking of any major economic and tax policy changes. With Senate Majority Leader Mitch McConnell’s re-election, there is little reason to suspect he’ll alter his long-standing obstructionist stance against Democrat-sponsored and supported bills.

Tax Planning Considerations

Increase in GILTI Tax Rate

  • Accelerate income in 2020 under preferable tax rate.
  • Defer deductions until after tax rate is raised.

Changes to Offshoring Tax Breaks and Penalties

  • Accelerate overseas manufacturing and imports before tax plans change.
  • Consider delaying launching U.S.-based manufacturing expansion until tax benefits are put into place.

Changes to Repatriation Tax Breaks and Penalties
Accelerate plans to move operations overseas before proposed tax penalties can be installed.

Final Thoughts

It may be weeks before the full outcome of the election is determined and agreed-upon. This delay could create difficulties for corporations and individuals with overseas interests seeking to avoid tax penalties that could follow a Biden presidency. It is recommended to begin planning for all likely outcomes as soon as possible.

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