“It’s going to slam clothing manufacturers hugely,” said Peter Barnes, an international tax lawyer at Caplin & Drysdale in Washington and a former senior tax lawyer at General Electric Co. Prices for U.S. consumers on everything from t-shirts to imported cars would increase by 15 percent to 20 percent, he said.
U.S. companies that are net exporters “could end up in a perpetual tax loss position” under the provision, wiping out their tax bills permanently, accounting firm EY, formerly Ernst & Young, wrote in a Nov. 9 research note.
House Republicans argue that the provision, combined with a lower corporate rate of 20 percent, will end the current incentive for U.S. companies to shift profits to their overseas subsidiaries and will boost manufacturing -- and exports -- at home.
Still, many issues weren’t spelled out in the House Republicans’ blueprint. For example, it doesn’t indicate whether flows of financial assets out of the country would count as exports. Nor does it define precisely when a sale would be deemed to have taken place.
Big multinationals are neither purely importers nor exporters; as such, the provision would introduce complex accounting issues over what percentage of a sold product came from taxable imported materials. Under the provision, companies like Apple Inc. and Pfizer Inc., which use sprawling global supply chains to make iPhones and prescription drugs for sale in the U.S., would pay the 20 percent rate on their domestic sales -- but not on their foreign ones, though they’d still pay the tax on any imported materials.
The proposed system “is a game-changer,” said Kenneth Kies, a Washington tax lobbyist whose clients include General Electric, Microsoft Corp. and Pfizer. “It’s a really big deal.”
This article was provided by Bloomberg News.