Pascal Lamy Warns US Over Tax Hike Proposals For Foreign Companies

by Ulrika Lomas, Tax-News.com, Brussels

18 July 2002

The Financial Times reported this week that European Union Trade Commissioner, Pascal Lamy has warned the US government that foreign investors may flee the country if proposals to increase taxes on foreign companies are implemented.

A draft bill recently introduced by House Ways and Means Committee chief, Bill Thomas seeks to disallow many of the tax deductions currently available on interest expenses paid by a US subsidiary to its foreign parent company. This measure is designed to fund tax breaks for US exporters, whose current state subsidies would cease under the provisions of the same piece of legislation.

However, speaking publicly for the first time with regard to the bill, which also seeks to clamp down on US firms which reincorporate offshore, the EU Trade Commissioner observed that:

'At the end of the day the US has to decide how much foreign direct investment they want. European companies would decide on investments on the basis of the incentives available.'

He added: 'I've never been told, by the US government or by Congress, that the US has an oversupply of foreign investment, or that foreign companies are providing too many jobs in the US.'

According to the Financial Times, Senator Thomas' bill has also been criticised by the very groups that it is trying to help.

The National Association of Manufacturers argued following the release of the draft law that curbing interest deductions by foreign companies would penalise foreign investors 'at a time when the US economy needs them most'.

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