European Finance Ministers To Call For A Rethink of Trump's Proposed US Tax Reform

Europe finance ministers and British chancellor Philip Hammond, have urge US Secretary of the Treasury Steven Mnuchin to rethink a proposed tax reform.

In a letter addressed to Mnuchin, seen by City A.M., the finance ministers of the UK, Germany, France, Italy and Spain warned that the tax reform promised by President Donald Trump could break international rules and may risk "seriously hampering genuine trade and investment flows".

The ministers warned that the measures could "discriminate" in a manner which would contravene World Trade Organisation (WTO) provisions, would be inconsistent with double taxation rules, and would be "poorly targeted" at helping to combat tax avoidance.

"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," the letter stated.

Trump's set of changes, which has also divided opinion in the US, is currently being pushed through the legislative process.

One proposal provides for a 20 per cent excise tax on payments to foreign affiliated companies, which "would impact on genuine commercial arrangements". Because it would only apply where payments are being made for foreign goods and services, this would discriminate and break WTO rules.

The "base erosion and anti-abuse tax" (Beat), which is designed to prevent tax avoidance, has also raised concerns over its potential impact on the financial sector. Cross-border intra-group financial transactions would be treated as non-deductible from gross taxable income, and subject to a 10 per cent tax.

"This may lead to significant tax charges and may harmfully distort international financial markets," the European finance ministers wrote.

Yet another provision could constitute an illegal export subsidy under WTO rules, since it would reduce the tax payable on profit generated abroad through intellectual property.

The European finance ministers said that they were "confident" that Mnuchin would "find a wise and well-balanced compromise" when creating the new tax code, but urged him to bear their concerns in mind.