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US corporate tax reform: game changed?

On December 22, 2017 President Donald J. Trump signed the ‘2017 US Tax Reform Act’ into law. This reform will likely impact multinational enterprises with operations in Belgium. The Belgian Government should act now to stay in the game.

When the US tax reform plans were first announced, AmCham Belgium advised that this could be a game-changer for international US companies and global investment flows. Now those reforms have been adopted, it has become clear that the 2017 US Tax Reform Act holds clear risks, as well as potential opportunities for Belgium, that need to be identified and pursued. The reform is designed to bring jobs, productive investment, taxable income and cash back to the US. The headline corporate tax rate drops to 21%, down from 35%, and a series of measures make the US more attractive for investments and cash flows.

The Importance of US Companies in Belgium

The reform’s objective of ‘America First’ might have repercussions for small and open economies such as Belgium, resulting in a loss of investments from the US – currently the largest inward investor in the country. The 900 majority-owned US groups active in Belgium directly employ more than 127,000 people, representing 4.5% of the total private sector employment. In addition, these groups generate further indirect jobs in Belgium, in large, medium-sized and small Belgian enterprises. The US Top 50 – the largest US companies in Belgium as measured by employment – directly employed 81,750 people and contributed more than €1.7 billion to the Belgian State in taxes and social security contributions in 2015.

The 2017 US Tax Reform Act Explained

The 2017 US Tax Reform Act makes the US more attractive as an investment location, both for US and non-US companies. This might cause companies to relocate their investments to the US; or at least make their new investments in the US, to benefit from a more favorable regime compared to elsewhere. Apart from the reduced headline corporate tax rate, the 2017 US Tax Reform Act imposes a one-off tax of 15.5% or 8% on offshore earnings of US-based multinationals and it can be expected that these multinationals will repatriate substantial amounts of cash to the US in order to pay for this one-off tax. Once this cash will have been repatriated, and utilized to pay tax in the US, it will no longer be available to finance future investments or expansion in Belgium. Between now and 2026, US corporate taxpayers are allowed to fully expense certain existing and new investments they make in the US and deduct 100% of the capital expenditure (CAPEX) cost immediately from their taxable income, instead of having to depreciate these investments over their useful economic lifetime.

What’s Next for Belgium?

The future prosperity of Belgium will in large measure depend on its own fiscal response. The Belgian ‘Corporate Income Tax Reform Act’ of December 25, 2017, is a step in the right direction, but further measures are needed to safeguard the future competitiveness of the Belgian economy.

Swift action must be taken, and in a way which takes into account the deep connection between small and medium-sized enterprises (SMEs) and multinational enterprises (MNEs). Although SMEs are often perceived as the primary creators of business, added value and jobs in Belgium, the success of many SMEs is intimately connected with the presence and success of MNEs in the country. To maintain and strengthen the country’s economic activity and prosperity for the future, it must be possible for SMEs and MNEs to successfully co-exist.

AmCham Belgium calls on the Government to continue to take action to make Belgium more competitive. A far-reaching further tax reform is an investment in the country’s future, and without it we risk losing foreign and local businesses and jeopardizing our prosperity. Neighboring countries, such as the Netherlands or the UK, have already indicated that they have captured the message. Belgium cannot lag behind and needs to weigh its options sooner rather than later. AmCham Belgium is ready to work with all levels of government to help Belgium stay in the game.