Finance ministers from Italy, Germany, France, the UK, and Spain have written to US Treasury Secretary Steven Mnuchin warning that provisions in the US tax reform bill contravene the US’s tax treaty and World Trade Organizations (WTO) obligations as well as international agreements reached under the OECD/G20 base erosion profit shifting (BEPS) plan.
The ministers – Italy’s Pier Carlo Padoan, Germany’s Peter Altmaier, France’s Bruno Le Maire, the UK’s Philip Hammond, and Spain’s Cristobal Montoro Romero – have expressed concerns about the House’s 20 percent excise tax on outbound payments and the Senate’s base erosion and anti abuse tax (BEAT) and global intangible low-taxed income (GILTI) regime.
The ministers said that the House excise tax provision is discriminatory and thus contrary to WTO rules because it only applies where payments are made for foreign goods and services. The measure is also inconsistent with US tax treaties because it taxes profits of non-US resident companies that do not have a US permanent establishment, they said.
The Senate BEAT tax proposal is poorly targeted, taking aim at transactions that pose little risk to the US tax base, the ministers argue. They said the provisions would be extremely harmful to international banking and insurance business, as cross-border intra-group financial transactions would be non-deductible and subject to a 10 percent tax.
The BEAT proposal may result in US operations of foreign financial institutions being subject to a greater than 100 percent effective tax rate or a double taxation,the ministers said, having a serious impact on the functioning and development of international financial markets. They said the proposed measure may also constitute an unfair trade practice.
The Senate GILTI proposal may face challenges as an illegal export subsidy under WTO rules, the ministers said. Moreover, the ministers said the regime is incompatible with the modified nexus approach, agreed to by nations in the BEPS plan. It also differs by providing a deduction for income derived from intangible assets other than patents and copyright software, such as branding, market power, and market-related intangibles, they said.
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