Will tax reform make US businesses more competitive?

Many financial executives tell me they are frustrated by the global tax burden facing multinational businesses.  According to the tax results of PwC’s 2015 US CEO Survey, 9 out of 10 US CEOs want the government to prioritize reforming the US international tax regime to make their businesses more competitive in the global marketplace.

The US statutory corporate income tax rate is the highest among all developed economies. That, in combination with the US worldwide income tax system, negatively impacts many US businesses in the global economy. Meanwhile, other countries have continued to reduce their corporate tax burden. It is no wonder that 76% of US CEOs worry about the size of the US tax burden relative to the rest of the world and see it as a key threat to their business growth.  

US CEOs recognize that creating a globally competitive tax system is critical not only for the success of US businesses but also for the ability of the United States to attract continued foreign investment. They believe that international tax reform is needed for promoting economic growth and the successful operation of US businesses in the global economy. According to our survey, 88% of them rank reforming the tax system to make it more internationally competitive and efficient as their top government priority.   

Advances in communication, information technology, and transportation provide US businesses with expanded global opportunities, but US CEOs view the divergence of our current tax system from most tax regimes of the rest of the world as a roadblock to their companies’ success. Evidence of the competitive disadvantage created by our international tax system can be seen in the increase in foreign acquisitions of US multinationals and in the number of cross-border mergers and acquisitions where the combined company is headquartered outside the United States.

This growing gap between the United States and the rest of the world concerns US CEOs who believe that the current international tax system does not accommodate multinational operations. In fact, 73% of them say that governments are not changing their tax regimes to reflect how multinationals operate in today’s global economy.  

While US CEOs have said that they would like to see our tax rules aligned with those of the rest of the world, they are skeptical of the ability of Congressional Democrats and Republicans to work together to enact meaningful tax reform legislation. According to our survey, only 8% of them say that they view current government efforts to create an internationally competitive and efficient tax system as being effective.   

There is no doubt that the US international tax regime needs an update, nor is there any question that global consensus is critical with respect to the allocation of taxing rights on cross-border income. But US CEOs are skeptical that members of the Organisation for Economic Co-operation and Development (OECD) and other multinational organizations can reach consensus sufficient to achieve substantial reforms of the international tax rules of countries around the world. In fact, only 10% of them say that they are seeing better global coordination leading to convergence of tax policies and rates.

Acknowledging the important developments from the OECD’s coordinated international efforts on base erosion and profit shifting, US businesses report that they are increasingly engaging with governments in efforts to improve the tax system. Even so, only 31% of US CEOs expect to engage with governments over the next three years, and 69% of them are not active participants in ongoing discussions on the future direction of tax policy.

Is your company affected by these issues? Do you share many of the concerns expressed by these CEOs?  While the outcome of tax reform efforts cannot be predicted with certainty, the US CEO Perspective on Tax can help prepare you to participate in the tax reform discussion.