PwC Warns That US Tax Bill Could Increase Liabilities For UK Companies

by Jason Gorringe, Tax-News.com, London

26 July 2002

International accounting firm, Pricewaterhouse Coopers warned this week that the corporate tax reforms recently proposed in the United States could adversely affect UK companies with US subsidiaries.

The Thomas Bill, tabled by House Ways and Means Committee Chairman, Bill Thomas aims to overturn what is known as the 'arm's length principle', which would stop businesses from financing their US operations with proportionally more debt than that of the worldwide group, thus increasing taxable profits in the US.

However, although this measure is principally aimed at American companies which have moved abroad, PwC partner Keith MacKeith told Accountancy Online this week that it is likely to 'result in millions of dollars in increased US tax liabilities and could significantly discourage new US investment by UK multinationals'.

'The proposed legislation would severely restrict the amount of debt a UK multinational could provide to its US subsidiary - to zero in some cases. This would override the generally recognised arm's length principle and such legislation could be regarded as discriminatory and contrary to US obligations under its tax treaties,' he told the magazine.

The PwC partner went on to urge UK multinationals with US operations to think carefully before making any new moves on refinancing, and to ensure that the provision receives attention on both sides of the Atlantic by making their voices heard.

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