US reform bill puts pressure on China to tweak its tax code to avert fund flight, lure investment
China’s tax authorities may have to reconsider whether they should accelerate their plans to simplify the country’s tax code and cut tariffs, as America’s biggest tax reform in three decades could set in motion a global race to slash taxes to attract capital.
US lawmakers are working this week to reconcile the tax-reform bills passed by the House of Representatives and the Senate, before sending the legislation to President Donald Trump to be signed into law.
The proposed bill would consolidate seven tiers of personal income taxes into three, slash the top corporate tax rate to 20 per cent from 35 per cent, and move the world’s largest economy toward a territorial tax system to encourage American companies to return their offshore profits and earnings home.
“The Trump administration’s tax cut plan will give US companies in China a shot in the arm to repatriate deferred profits back home,” said Andrew Choy, international tax leader for Greater China at EY.
The tax burden in China, inclusive of income tax, pension contributions, administrative fees and a variety of surcharges, could be as high as 40 per cent, according to the Unirule Institute of Economics’ 2016 report. The “killer tax” has already sent some of China’s largest companies packing for lower-tax jurisdictions.
Cao Dewang, founder of the Chinese windscreen maker Fuyao Glass Industry Group, last year opened the world’s biggest assembly for automotive glass in the American Midwest state of Ohio, far from his hometown of Fuqing in Fujian province. Zong Qinghou, founder of China’s largest beverages bottler Wahaha Group, has been prowling for an overseas acquisition since 2012, dispatching his daughter Kelly Zong to lead a possible takeover of the biggest US milk processor Dean Foods, according to his May interview with Bloomberg Television. Foxconn Technology, the world’s biggest contract producer of consumer gadgets, announced a plan in August to set up a US$10 billion assembly in the US state of Wisconsin to make display panels.
