Trump’s Tax Bill Sends Companies Scurrying for Loopholes

President Trump’s recently passed tax bill, the Tax Cuts and Jobs Act of 2017, is already spurring a frenzy of activity from corporations eager to find more loopholes and ways to shield their money. Cross-border payments and swapping bank loans for debt are two popular tax-dodging moves that corporations are taking advantage of.

These moves are technically legal, but they only questionably align with the Tax Cuts and Jobs Act’s original purpose: creating more domestic jobs, repatriating more money, and spurring on investment in the United States. The aim was to shore up funds that could be pumped back into the American economy; instead, it looks like the Tax Cuts and Jobs Act is leading to tax-dodging schemes and stock buybacks rather than reinvestment in once-thriving industrial towns across the United States.

The basic aim behind these tax-dodging schemes is to curtail the potential impact that a new round of corporate taxes could have on quarterly profits. These three new corporate taxes affect multinational companies that do business through the United States. The United States’ Treasury, lead by Treasury Secretary Steve Mnuchin, and the Internal Revenue Services are still trying to square these three new corporate tax measures with existing law.

According to The Hill, this informal reconciliation process could take months to find its conclusion. The Internal Revenue Service is focusing a lot on how the base-erosion and anti-abuse tax interacts with the cost of goods sold (COGS) by corporations to determine whether companies are operating within the bounds of the new tax law. This has sent thousands of companies scrambling for creative ways of making liabilities that wouldn’t normally be classed under cost of goods sold do so.

Normally cost of goods sold would exclusively entail labor plus raw materials, but the new tax bill is sending companies’ consultants and accountants into overdrive in an effort to beat the system. The Internal Revenue Service is taking an extremely close look at what technically should constitute a good, which could theoretically blunt the creative schemes currently in the works from tax-dodging corporations.

The third new corporate tax is no less complicated than the previous two. The third is shorthanded as FDII, foreign-derived intangible income. Massive tech corporations, biotech firms, and pharmaceutical companies should be most heavily affected by the foreign-derived intangible income component of the new tax bill. Still, corporations can only wait to see how the IRS responds…and plan their actions accordingly.

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