Global banks raised concerns on Friday over a provision in the U.S. Senate tax bill aimed at cracking down on tax avoidance by multinational corporations that they said could hurt the banking industry.
Banks initially looked to be one of the major winners of Republican lawmakers` efforts to overhaul the U.S. tax code, and publicly they have been very supportive.
But two bank trade groups noted in a letter to the Senate Finance Committee that a provision to fight tax dodging by multinationals could ratchet up the cost of providing risk management services to Main Street companies, causing market disruption.
The letter, seen by Reuters, was sent by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, whose members include the likes of Goldman Sachs Group Inc
The provision that has banks worried is aimed at stamping out tactics employed by multinational corporations to reduce U.S. tax obligations by shifting money earned in the United States to less heavily-taxed overseas affiliates.
Reversing this so-called “base erosion” among U.S. taxpaying companies has been a top priority for Republican lawmakers.
The current Senate bill aims to do this by imposing a tax of up to 10 percent on payments made by a U.S. company to its related foreign company, if the payment exceeds certain threshold.
The provision would penalize transactions global banks make between their affiliate entities in order to provide everyday services to clients, in particular risk management products such as swaps that hedge rate rises or currency swings.
These deals typically require global banks to pass trades and payments between their U.S. and overseas entities to manage the currency and interest rate risk they incur when facilitating the client trade.
Under the current version of the bill, these intra-group transactions could be taxed at 10 percent, even though the entire trade may result in little or no U.S. tax liability. That could make such deals uneconomical and even potentially upend the global derivatives market.
"This provision could discourage Main Street businesses from engaging in risk-reducing best practices, thereby increasing their business risks and driving up costs of consumer goods and services," the trade groups wrote in their letter.
The Senate Finance Committee approved the bill containing the provision late Thursday, and will send it on to the full Senate for a vote in the coming weeks.
The U.S. House of Representatives approved its version of tax legislation the same day, potentially setting the stage for the two to hammer out a compromise bill as soon as December.
Republican Senator Orrin Hatch, the finance committee chairman, and Ron Wyden, the ranking Democratic member of the committee, did not immediately respond to requests for comment.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.