Multinational companies such as Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE) and Ford (NYSE:F), could face a new 20% tax on payments they make to offshore affiliates, a development that Ernst & Young’s Ray Beeman is calling an “atomic bomb in the draft.”
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National Tax Payers Union President Pete Sepp on Wednesday discussed the challenges Congress will have with passing this new tax provision.
“Whether you want to call it a hand grenade or an atomic bomb, the provision in the House section 4303 deals with what are called intercompany transactions between firms based here and their foreign affiliates. There would be a 20% excise tax on services and goods imported from abroad into here in those transactions,” he told FOX Business’ Liz Claman on “Countdown to the Closing Bell.”
The provision is expected to raise $154 billion in revenue over the next decade.
Sepp explained what needs to be addressed before Congress can proceed with passing the proposed tax change.
“The problem here of course is, how do you define these transactions? What is a foreign affiliate? And what ought to be excluded from the base?” he said. “It’s important to get this right because, for example, if you don’t define what one of these transactions is properly, things like reinsurance, which have helped to offset all the disaster losses, could get unfairly taxed and you are creating other problems.”
Sepp also discussed the difference between the new tax proposal and the border adjustment tax.
“It would be a surprise excise tax. Now compared to the border adjustment tax in the old House plan and this has been linked to a back door border adjustment tax, not quite like that. But remember that that in the old House plan was over $1 trillion. It’s not intended to raise as much revenue,” he said.