As if the House Republican tax bill didn’t have enough problems, a complicated excise tax proposed for the foreign transactions of multinational companies looks to be the newest obstacle in an uphill battle towards tax reform.
Some conservatives view this provision as very similar to a controversial border-adjustment tax that was actually just killed off this summer while congressional Republicans and the Trump administration were crafting their legislation.
Freedom Partners and similar groups are pushing for the excise tax to be removed as the House Ways and Means Committee began considering the legislation on Monday, November 7.
"This new 20% tax would apply to cost of goods sold, which could ultimately saddle consumers with higher costs, undermining the economic benefits of the larger bill," Freedom Partners vice president of policy, wrote in a letter Monday.
Others see the excise tax as crucial to stop multinational companies from using transactions with foreign affiliates to reduce their U.S. taxes, which is a fair point. McDonald’s just last year moved their headquarters to Luxembourg in order to save on taxes – countless other corporations have utilized similar strategies.
But big changes to the provision could be tough to achieve because it’s estimated to produce $155 billion in additional revenue over the next decade, and that is quite difficult to argue with.
The excise tax was a last minute addition to the over 400-page Tax Cuts and Jobs Act presented by House Republicans last week.
Companies can sell goods or services to a foreign affiliate at an inflated price, and then deduct that cost on their U.S. taxes.
U.S. companies that take large deductions for a good or service take profit out of the U.S. tax base and shift it to a country with a lower tax rate. This results in a distortion of the U.S. tax liability of these multinational companies.
The excise tax would hold companies with at least $100 million in annual payments to foreign affiliates to a 20% tax rate on such transactions.
This bill would also reduce the U.S. corporate tax rate to 20%, down from 35%, recovering lost U.S. tax value.
In the end, however, House Republicans killed the idea because of strong opposition