The provision of the Senate tax bill intended to fight tax evasion by international corporations has raised global banks’ concerns, who fear this could hurt the banking industry.
Initially, it seemed like banks would be among the major winners of the Senate efforts to overhaul the tax code, which they strongly supported.
However, two bank trade groups, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, said in a letter to the Senate Finance Committee that this provision is likely to increase the cost of providing risk management services to Main Street firms, leading to market disruption.
The provision aims at putting an end to tactics multinational companies use to reduce tax obligations. This usually includes shifting money they have earned in the U.S. to overseas affiliates which are not as heavily taxed.
GOP lawmakers have made it their top priority to reverse this practice among companies, known as “base erosion,” by imposing a tax of about 10 percent on all payments U.S. companies make to their foreign affiliate in case the payment exceeds a given limit.
Under the provision, transactions made by global banks between affiliate entities will be penalized, so that services and products such as risk management product are provided to clients.
“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.
The bill was approved late on Thursday by the Senate Finance Committee and will be sent to the full Senate to be voted.
The committee chairman Orrin Hatch and Ron Wyden, a top-ranking Democratic member of the finance committee did not respond to requests for comment.