Global banks flag concerns over US Senate tax proposal
WASHINGTON (Reuters) – Global banks raised concerns on Friday over a provision in the US 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 US 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, Morgan Stanley, Citigroup Inc and JPMorgan.
The current Senate bill aims to do this by imposing a tax of up to 10 percent on payments made by a US 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 US 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 US 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.