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GOP to Crackdown on International Tax Avoidance

How might the excise tax impact my multinational business?

The House Republican’s tax-reform plan contains stringent new rules intended to crackdown on international tax avoidance.  The plan would impose a new excise tax that could prove devastating for multinational corporations if they do not agree to taxation of their foreign affiliates by the IRS.  In effect, the new excise tax could eliminate the tax advantages that U.S. companies often reap by moving their operations offshore.  Our international tax law attorneys at Brunoro Law discuss the proposed new rules on the taxation of international businesses and how your multinational business could be affected.

Discouraging American Companies From Moving Overseas

President Trump has long expressed a desire to stop American companies from moving their operations overseas.  Many multinational companies experience great financial benefits from adopting a more international operations system, which often includes mergers with foreign companies, but President Trump believes these actions are costing American tax payers.

The Proposed Excise Tax

The Republican tax bill proposes imposing a 20 percent tax on cross-border transactions, targeting those transactions routinely made between related multinational business units.  The excise tax is aimed at addressing the fact that many multinational companies have a network of international affiliates which they can use to avoid U.S. taxes by utilizing internal transactions.

Since the Republican House plan was unveiled, several large corporations and organizations even within the Republican party have spoken out against the excise tax.  Some claim the proposal is in violation of World Trade Organization agreements because it essentially amounts to an illegal tariff. Recently, sources have stated that the Senate tax plan will not contain the 20 percent excise tax. However, without the tax, the new tax plan would lose substantial revenues, estimated at $155 billion over a decade.

The excise tax could force multinational corporations to reconsider submitting their foreign entities to taxation in the U.S.  If they do not, they could be taxed the 20 percent excise tax on all sales from their overseas affiliates to the U.S. company, which is likely to cost businesses far more than U.S. taxation.  Multinational companies are advised to start planning for the potential adoption of the excise tax now so that they can be prepared if the proposal soon becomes law.  

Posted in: International Tax

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