Foreign-Owned Banks’ Results Could Sweeten Further Under Tax Law | Modern Society of USA

Foreign-Owned Banks’ Results Could Sweeten Further Under Tax Law

Foreign-Owned Banks’ Results Could Sweeten Further Under Tax Law

The BEAT is meant to curb a practice known as “earnings stripping,” in which multinationals avoid American taxes by shifting profits to other branches of the company operating in lower-tax countries overseas — often in the form of interest payments.

It is a sort of minimum tax, forcing companies that send their profits offshore to pay at least some American tax on them.

But in its December regulations, which provided nearly 46,000 words of details on how the provision applies to companies, Treasury essentially said certain interest payments made by foreign-owned banks are not subject to the calculations that determine that minimum tax. The move alarmed some former congressional aides who were involved in the tax effort. They said the exemption ran afoul of lawmakers’ intent in passing the tax overhaul.

The law’s authors tried to balance the international provisions to favor neither American-based companies nor foreign-owned ones. Throughout its drafting, they repeatedly asked the congressional Joint Tax Committee to run tax models to simulate the effects on both types of companies, eventually finding a near-50-50 balance. The Treasury regulations, which included the exemption that foreign banks had pushed for, could upset that balance.

Foreign banks received the regulations warmly but asked Treasury to go even further, in the name of fairness. The Institute of International Bankers, an industry lobbying group, told Treasury officials in a letter that it “wishes to express its appreciation for the strides made by the proposed regulations.”

The institute went on in the letter to push Treasury for further tweaks, in final regulations, that would reduce potential bank liability under the tax even more. Those highly technical changes would, if adopted, essentially exclude an even broader set of payments between banks and their foreign affiliates from the minimum tax calculations.

Bank reactions to the December regulations have been mixed, in part because some foreign banks are structured in ways that expose them to more BEAT issues than others. UBS officials reported that they expected not to incur any liability under the minimum tax, in light of the regulations. Credit Suisse said in February that it expected to still have to pay the tax, which it expected would add about 2 percentage points to its effective tax rate.

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