Businesses making profits abroad will pay more taxes under GOP's bill

A new provision in the GOP's tax bill imposes a 20% tax on any money transfer between a multinational business's U.S.-based unit and its units overseas. GOP lawmakers said that the measure aims to curb multinationals' tax avoidance and to remove tax advantages that they said foreign companies have over U.S.-based ones.
By Paul Pate | Nov 08, 2017
GOP lawmakers introduced a tax-reform proposal last week to crack down on multinational corporations that avoid U.S. taxes by moving their money outside the United States. The "anti-avoidance" proposal, which is part of the larger tax-overhaul bill that House and Senate Republicans are putting together, imposes a 20% excise tax on cross-border payments between affiliates of the same company.

The measure targets both foreign-owned multinationals that have U.S.-based affiliates, as well as U.S. companies that move their head offices overseas. Currently, cross-border payments between a company's affiliate and its other divisions are tax-deductible and occur when the affiliate or division purchases materials, services, or goods. Rep. Kevin Brady (R-Texas), House Ways and Means Committee chairman, said that the measure would shrink a large tax loophole that multinationals routinely use.

"Yes, we have a new design to stop inbound, unwarranted deductions of expenses," Brady said. He added that the tax also removes tax advantages that he said multinational and foreign businesses currently have over businesses that hire and operate within U.S. territory. Many European multinationals, for example, pay lower taxes than U.S. companies by locating their headquarters in parts of Europe where business taxes are lower.

The measure drew fire from lobbyists for numerous companies, who said that the tax could damage global supply chains. Others said that it might not even be allowable under international tax treaties and World Trade Organization protocols that prohibit a national government from taxing a business's profits twice if the second tax did not take into account income taxes that that the business had already paid on the profits in other countries.

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