1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

The Destination Based Cash Flow Tax – Is it a VAT?

Print Friendly

As tax reform proposals are considered over the next few months, the concept of a destination based cash flow tax remains in the GOP proposal.  This type of corporate tax acts like a VAT, but with some allowable deductions, such as payroll.  And the boarder adjustment is a driving feature of the proposal.

The boarder adjustment feature would exempt from tax sales of goods exported outside of the U.S.  However, the cost of goods purchased by a U.S. company from foreign sources would not be deductible against the the corporate tax.  So, the tax would be imposed on goods produced and sold in the U.S.

The proposal also allows for full deductions of capital investments with no depreciation required (but does not allow interest payments to be deducted).  This is similar to most VAT systems and is touted as a provision that will spur investment.

A reconciliation between the current administration’s tax plan and the GOP plan is underway, and we won’t have wait too much longer to see if the corporate rate drops to 15% or 20% and whether we the destination based cash flow tax survives.