How The U.S. Tax Reform Will Affect Foreign and Offshore Banks
The biggest U.S. tax reform for decades has changed a lot for individuals and companies, not only in the country but also abroad. As we recently wrote in our article about the Offshore Tax, many foreign banks will also be affected by the new law is not so favorable ways. Here’s a summary of the eventual issues, quoted by Bloomberg Politics, that they may experience after the U.S. tax reform:
- The Introduction of BEAT (Base Erosion and Anti-Abuse Tax) requires U.S. companies to include any payments made to and received from their foreign subsidiaries or branches in the calculation of their tax liability.
- It’s not clear whether those payments should be counted as net or gross. Gross payment count can be damaging to banks as they move money frequently between branches locally and abroad.
- The overall tax liability of foreign banks may be increased.
- The benefits from the reduced corporate tax rates may be lost for foreign banks due to BEAT.
- The BEAT rate will be 6% for banks and 5% for other non-financial organizations.
- Foreign banks may be slashed with double taxation as they will have to pay domestic taxes and BEAT in addition.
What’s going to happen next?
- Foreign bank lobbyists have urged Congress to bring clarity to the law and make necessary changes to ensure BEAT doesn’t unfairly disadvantage foreign financial organizations.
- Some edits in the law have already been made, but more are expected.
- IIB is expected to work closely with Congress and the Treasury to make sure this particular law from the S. tax reform is fit for purpose and does not harm foreign banks.
- Derivatives have already been exempted from BEAT, but still more needs to be done.
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