President-elect Donald Trump is set to return to the White House with Republicans narrowly securing both the US Senate and the US House of Representatives. Having control of both chambers positions the party well to pursue significant tax reforms, likely through the budget reconciliation process, similar to the Tax Cuts and Jobs Act of 2017 (TCJA). Although Trump did not present a formal tax proposal during his campaign, he highlighted key areas of tax policy, including extending TCJA provisions, introducing new tariffs, lowering corporate tax rates, and proposing an intellectual property (IP) purchasing initiative. These anticipated reforms are extensive and will impact individuals and businesses, with significant implications for cross-border mergers and acquisitions (M&A).

In Depth

EXTENSION OF THE TCJA

Trump intends to seek an agreement to extend the TCJA’s expiring tax provisions within his first 100 days back in office, saying in a recent interview that it is one of his top priorities. Despite Trump’s remarks, disagreement among Republicans in US Congress has raised questions on how quickly those provisions could be extended. Senate Republican leaders want two separate reconciliation bills next year to address border policy first and tax provisions later. However, House Ways and Means Committee Chair Jason Smith intends to advocate for one bill in 2025, warning that delaying tax measures could hinder lawmaker support.

Extending the TCJA provisions beyond 2025 may have a significant influence on cross-border M&A by maintaining the current tax incentives and regulatory environment that shape these transactions. For example, the bonus depreciation provision, which allows businesses to immediately deduct a large percentage of the cost of eligible property, would continue to incentivize capital investments by reducing upfront costs. In many M&A transactions, buyers engage in basis step-up planning to increase the tax basis of the acquired assets to their fair market value at the time of purchase, which can lead to higher depreciation deductions, further reducing taxable income and enhancing the financial attractiveness of such deals. This can be particularly relevant for non-US buyers who acquire US businesses with material hard assets that may qualify for 100% bonus depreciation. Trump has also proposed a research and development (R&D) expensing provision, which would allow for the immediate deduction of R&D costs and continue to encourage innovation by reducing the tax burden on companies investing in new technologies.

Additionally, Trump has proposed easing the interest expense limitations, which would allow businesses to deduct a higher percentage of their interest expenses and impact companies with significant debt financing. Trump appears inclined to retain the foreign-derived intangible income (FDII) provision, providing a lower tax rate on income from exports of goods and services, and the global intangible low-taxed income (GILTI) provision, imposing a minimum tax on foreign business income. The FDII and GILTI effective tax rates are set to increase in 2026; it remains unclear whether Trump will modify such provisions.

Together, these extensions may enhance the attractiveness of US companies as acquisition targets and support outbound investments by providing a stable and favorable tax environment for cross-border M&A transactions.

TARIFFS

Under the incoming Trump administration, proposed tariffs are being discussed. The proposed tariffs generally include tariffs of 10% to 20% on all imports, 60% to 100% on imports from China, and 100% to 200% on certain imports from Mexico. It remains unclear whether the tariffs could be used as a device to offset revenue losses from tax cuts, which may depend on whether Congress is involved in the process. These tariffs could substantially impact cross-border M&A by increasing the cost of imported goods, thereby reducing the attractiveness of foreign acquisitions and potentially leading to retaliatory tariffs from affected countries. This environment of heightened trade barriers and economic uncertainty may deter cross-border investments and complicate the strategic planning of multinational corporations. Additionally, these tariffs may have a meaningful impact on M&A in terms of liability, risk allocation, and due diligence, especially for entities that heavily rely on exclusive imports.

CORPORATE TAX RATES

The new Trump administration is proposing to lower corporate tax rates even further, aiming for a 20% rate and a 15% rate for American-produced goods. While this reduction is expected to attract more foreign investment to the United States, it may also decrease the value of net operating losses (NOLs), prompting companies to utilize them more quickly before the rate cuts diminish their value. For cross-border M&A, these lower corporate tax rates could make US companies more attractive acquisition targets because of their enhanced profitability and reduced tax burdens. However, the potential decrease in NOL value might lead to a rush in utilizing these losses, impacting the timing and strategy of M&A transactions. Additionally, legal entity rationalization will become crucial as companies seek to streamline their structures to maximize tax benefits and operational efficiencies in this new tax environment.

IP PURCHASING

Trump’s proposed IP purchasing initiative, which emphasizes stricter enforcement and increased penalties for IP violations, aims to protect domestic innovation and combat international IP theft. This could make US companies more attractive targets for cross-border M&A, but the heightened trade tensions and enforcement measures may also create an uncertain investment environment. Additionally, considerations around how IP will be owned and operated post-acquisition will be critical, as acquiring companies will need to navigate the complexities of IP management and enforcement in this stricter regulatory landscape. US-international groups may need to consider various tax ramifications from both an M&A and restructuring perspective if these IP changes come to fruition.

PILLAR TWO: THE 15% GLOBAL MINIMUM TAX

Under the new Trump administration, the future of Pillar Two, which aims to implement a global minimum tax for companies with average gross revenues exceeding €750 million, remains uncertain. Commentators suspect that the new Trump administration will not adopt Pillar Two and will instead use retaliatory measures, such as tariffs, to combat the negative impact on US companies. Notwithstanding, US groups with non-US subsidiaries situated in adopting Pillar Two jurisdictions remain subject to these rules. The expected disalignment may continue to complicate cross-border M&A transactions.

HOW TAX REFORM IS PASSED

The enactment of tax reform under the incoming Trump administration is likely to follow a two-step budget reconciliation process. This legislative process helps lawmakers make necessary tax and spending changes to meet the congressional budget resolution. Both houses of Congress must approve a concurrent budget resolution with reconciliation instructions. Importantly, reconciliation bills cannot increase deficits beyond the budget window. To achieve this, budget cuts, the closing of loopholes, and proposed tariff increases may be implemented, which is crucial to monitor in an M&A context.