Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Donald Trump, the first presidential candidate since the 1970s to not release his full tax returns, will likely be leading a significant overhaul of the U.S. tax code.

In case you were hiding in a bunker, Trump won the White House in a shocking upset over Democratic nominee Hillary Clinton. Much is unknown about what a Trump presidency will actually look like, but one area where we do have at least some sense of a plan is taxes. Trump has proposed reducing the corporate tax rate to 15 percent from the current 35 percent, the highest in the developed world. He also wants to give companies a one-time opportunity to pay just a 10 percent tax to bring home what researcher Capital Economics says amounts to some $2.5 trillion in foreign profits stashed overseas. 

Pot of Gold
Here are some of the biggest holders of overseas cash among U.S. corporations
Source: Bloomberg

While many countries require corporations to pay taxes only on domestic profits, the U.S. extends its tax reach to all global income. Companies can avoid that extra levy by finding foreign uses for that cash or hoarding it overseas -- and that's what many have done. Dutch chipmaker NXP Semiconductors NV stood out as an attractive target for Qualcomm Inc., for instance, largely because the U.S. tech giant could help fund its $47 billion takeover with its overseas cash. Others like Apple Inc. have decided they'd rather borrow money to pay for dividends and share buybacks than tap into their foreign cash.

Some U.S. companies have chosen to avoid the issue altogether by dumping their American citizenship. Corporations including medical-device maker Medtronic Plc and trash collector Waste Connections Inc. have done so via inversion transactions, takeovers that have allowed them to gain residency in countries where tax rates are lower.

Both political parties would love to stop the flight of U.S. companies and tap into that overseas tax treasure trove, but they've had diverging ideas about the best way to accomplish those goals. Now, with both the Senate and the House of Representatives controlled by Republicans, it looks like the log-jam could finally be broken.

Trump's proposed corporate tax rate of 15 percent would significantly undermine the appeal of inversions, which had already become less tenable after a series of rules issued by President Barack Obama's Treasury Department. Even if Congress winds up targeting a rate closer to 20 percent, that would put the U.S. in line with Britain. Ireland's 12.5 percent rate could perhaps still be enticing, but there just aren't that many Irish companies left for the taking and the Treasury's inversion crackdown has made it difficult for companies to relocate to a country that their would-be target doesn't already call home.

Different Burdens
Corporate income tax rates vary widely among countries, creating incentives to game the system.
Source: OECD. Deloitte, KPMG

One question is whether a Trump administration would echo Republican criticisms of the Treasury's legislation by regulation, says tax expert Robert Willens. The agency took action on inversions because Congress was gridlocked, but many felt it overstepped its bounds. Should Trump roll back some of the regulations and rehash them as part of a broader revamp, some of those rules could fall by the wayside.

In terms of repatriation, corporate chieftains will likely cheer any one-time tax holiday. From their perspective, it's a gift. Apple's Tim Cook has expressed an interest in bringing back some of the $216 billion the iPhone maker has overseas. But the U.S. has tried this before, and the money corporations brought home didn't always go to things like research and job creation, as lawmakers had intended. A 2011 study found that for every $1 that companies repatriated under a 2004 tax holiday, shareholder payouts increased by 60 cents to 92 cents.

And what's to stop companies from just piling up their cash again and waiting for the next tax holiday? That may still be preferable to paying an extra U.S. tax levy. To truly stop the stockpiling, Congress would need to consider a move to a territorial system whereby U.S. companies can repatriate foreign profits without an additional tax. This will be hard to do without significantly raising the national debt. 

It's also hard to predict how other countries will react to Trump's changes. International cooperation is needed to avoid sparking tax wars; just look at the vitriol around the European Union's demands that Apple pay $14.5 billion in back taxes. The OECD and G20 have been doing laudable spade work on corporate tax reform aimed at getting big economies on the same page. Will a Trump administration committed to putting America first have an appetite for the tough slog of diplomacy?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. One example is the restrictions on serial inverters that seemed particularly designed to wreck Pfizer Inc.'s $160 billion merger with Allergan Plc. If that or other regulations were rescinded or modified, the inversion phenomenon could see a revival of sorts, Willens says.  

To contact the authors of this story:
Leila Abboud in Paris at
Brooke Sutherland in New York at

To contact the editor responsible for this story:
Beth Williams at