Winning!
Posted on 12/20/2017 9:17:07 AM PST by Drew68
European finance ministers are worried. They say the United States' big tax reform bill contains measures that would unfairly disadvantage European business and contravene global fair-taxation rules. Are they right?
Last week, the finance ministers of Europe's five biggest economies — Germany, France, the UK, Spain and Italy — wrote an anxious letter to their American colleague, US Treasury Secretary Stephen Mnuchin, and copied it to all senior Republican politicians in the Congress and Senate.
The letter's thrust: The draft US tax bill, if passed as written a week ago, would represent a break with global fair-taxation rules as applied to corporations, and represent a thinly disguised form of trade war.
"The United States is Europe's single most important trade and investment partner," the finance ministers wrote. "It is important that the U.S. government's rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed-up. The inclusion of certain less conventional international tax provisions could contravene the US's double taxation treaties and may risk having a major distortive impact on international trade."
A day later, a similar letter was sent to Mnuchin by the European Commission's four most senior economic officials and made many of the same points.
The two letters didn't get much of an answer — at least not a public one, though quiet edits to the bills taking European concerns into account may be happening behind the scenes.
Draft federal legislation in the US always exists in at least two separate versions: one drafted in the Senate, and the other in the House of Congress. The "conference process" is the negotiation that reconciles the differing House and Senate versions of a draft bill. It's due to come to a close this week.
Three specific measures were brought up in the European letters.
Excise tax
First, the House bill proposed a new "excise tax" of 20 percent, levied on payments made when an American company buys goods or services from a foreign subsidiary or "affiliate" — unless the subsidiary elects to treat the payments as income in the US.
The European finance ministers argued that this measure would break WTO rules because it levies a tax only on foreign goods and services, not on the equivalent domestically produced goods and services. They said it also amounts to "double taxation," because it would effectively tax the profits of non-US-resident companies — after they already paid taxes on those same profits in their home countries.
"Bearing in mind that almost half of transatlantic trade is intra-company trade, this risks seriously hampering genuine trade and investment flows between our two economies," they wrote.
Base erosion tax
Second, the Senate bill featured a "base erosion and anti-abuse tax" (BEAT) provision. "Base erosion," or more properly "base erosion and profit shifting" (BEPS), is a technical term referring to various accounting schemes corporations use to legally shift profits from where they're earned, to ultra-low tax jurisdictions.
To take a common example: Multi-national corporations often establish their formal headquarters in a tax haven, assign their intellectual property to that headquarters, and then establish contracts requiring all the company's foreign subsidiaries to pay an exorbitant "licensing fee" for the use of the corporate logo or other corporate intellectual property.
The licensing fee is set at a rate that cancels out the net revenues of the subsidiary corporations, leaving them paying no taxes in the countries where they actually produce or sell goods or services. The net effect of this "profit shifting" scheme is the erosion of the tax base of these countries — hence "base erosion."
Base erosion — or protectionism?
The EU finance ministers said that: "Preventing base erosion is an important goal," but "the provision appears to have the potential of being extremely harmful for the international banking and insurance business, as cross-border intra-group financial transactions would be treated as non-deductible and subject to a 10 percent tax. This may … harmfully distort international financial markets."
The finance ministers concluded that "some of the proposed measures could constitute unfair trade practice and may discourage non-US financial institutions from operating in the US."
Lower taxes on income from intangibles
Finally, the Europeans criticized a proposal in the Senate bill for a preferential tax regime for "foreign-derived intangible income."
In essence, when US companies earn income outside the US via licensing fees, those fees would be taxed at a reduced corporate tax rate of 12.5 percent (compared to a proposed 21 percent federal tax rate for other corporate profits).
The Europeans wrote that this would subsidize exports compared with domestic consumption, and could face challenges as an illegal export subsidy under WTO rules.
Moreover, "the design of the [proposed] regime is notably different from accepted IP [intellectual property] regimes 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."
Legitimate concerns
Are the criticisms from Europe justified? In a word: Yes, according to the experts consulted by DW.
Clemens Fuest, the president of the Ifo Institute for Economic Research in Munich, said: "The European Commission's criticism of the US tax plans is justified. The proposed measures would disrupt international trade and lead to double taxation."
Tobias Hentze, an economist at the German Economic Institute in Cologne, told DW that he was worried the tax reforms could be the spark for the next round of a "race-to-the-bottom" of jurisdictions competing to offer corporations ever-lower tax rates.
If the reforms go through, Hentze said, the US will go from being a high-tax to a low-tax country. Until now, the tax burden on companies has been significantly higher in the US, with a tax rate of 39 percent, compared to 30 in Germany or 34 in France.
America First, again
The US also proposes to play unfairly by taxing profits that have already been taxed in Europe, Hentze said, concluding: "The underlying message to multinational companies is: If you produce here in the US, you will be spared the double taxation."
The reform package provides further incentives for companies, too. With the creation of a so-called patent box, US legislators want to incentivize companies like Apple to register their patents and trademarks in the US, by means of a preferential tax rate on profits generated (12.5 percent). A fair tax regime, in Hentze's view, should not offer tax rebates for certain types of profits.
"However, countries like Ireland or the Netherlands already do that too," Hentze pointed out. "Therefore, the indignation of EU finance ministers is not very credible on this particular point."
Winning!
Then I remembered they have an Islam problem much bigger to worry about.
I fully expect that within five minutes after President Trump signs tax reform into law, some liberal judge somewhere will declare it illegal.
Funny, they seem to have no problem that I, as a private citizen, have to pay double taxes.
As a matter of fact, they actually aided and abbetted when the previous administration essentially did away with my right privacy by forcing the banks around the world do supply anything the IRS might like to have, at any time, for any reason, without informing me in advance. IIRC they couldn’t bend over fast enough in order to comply - even if it meant making me a third class member of society with less rights than any other person here (citizen or non-citizen).
They even forced their own citizens to file paperwork with the banks that stated that they are not “US Persons” (citizen / green card holder).
Sorry if I don’t “feel their pain” ....
Taxation is a power exclusively committed to Congress under Article I. Some unenlightened District Court judge might grant such an injunction, but it will go the SCOTUS faster than poop through a goose and that injunction will be gone faster than spit on a hot skillet.
I love metaphors.
An injunction against legislation...... wow
Dear President Trump,
Send em some cheese to go with their whine!
And maybe some Trump steaks
With ketchup
WE DON’T GIVE A CRAP WHAT THE E.U. SAYS OR THINKS..
We don’t give a crap what the Democrats or Main Stream Media says or thinks...
Keep winning....
BTW ???
Any form of Democrat’s tax increase is a form of “ FORCED REPARATIONS “ from the productive class.
Look for the UN to try and pass some resolution saying we can’t do this!
Global rules? We don’ need no steekin’ global rules.
They are accustomed to the US Government screwing American taxpayers and using our tax money to aid European countries.
So now they think it’s unfair for President Trump to TRY to put American taxpayers first.
I say TRY because he has to fight all libtards, commies, snowflakes and other democrats.
Plus all the never-Trumpers, the UN, all musims, most blacks, many RINO’s. and everyone else in the Big-Gov Swamp.
steenkin’
Who determines what a “fair tax” for ANY country should be, but your own legislative system, anyway?
What is any criteria for a “fair tax” supposed to look like? Taxes exist for a means to supply revenue to the legitimate government, but the legal intent is often perverted to include direct control over individuals and corporations, through a whole scheme of granting exemptions and exceptions to “encourage” certain patterns of behavior.
.
>> “Look for the UN to try and pass some resolution saying we can’t do this!” <<
We can move the UN out of the US and revoke their visas!
FU EU
The EU needs to go play with themselves.
Those Euroweenies can go stuff themselves with a big fat bratwurst!
Actually the EU economy isn't really socialist. It's corporatist, which is to say fascist. They regulate their corporations in a manner so as to give preference to those corporations that contribute most to the material well being of the state. And you're right, they can't compete with freedom.
Hey, the Courts seem to be trying all kinds of stuff these days. Nothing would surprise me anymore.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.