US tax cuts could hit Europe hard

‘Trade, investment at risk’

THE EUROPEAN Commission told US Treasury Secretary Steven Mnuchin on Tuesday that a planned tax overhaul in the US could “seriously” hamper trade and investment flows across the Atlantic.

A letter from the Commission to Mnuchin expressing the concerns follows one sent to him on Monday by the finance ministers of Germany, France, Britain, Italy and Spain setting out similar views.

In a further escalation of the transatlantic row, European banks said on Tuesday that the US tax reform, which is expected to be passed by the end of the year, could distort financial markets “in a major way”.

Hampering The EU executive’s letter, signed by four commissioners in charge of finance, economy and trade, said the planned overhaul “contains elements that risk seriously hampering trade and investment flows between our two economies”, and would likely be in breach of international trade rules and commitments.

The US reform, which would slash corporate tax rates from 35 to 20 percent and significantly revise deductions, could be incompatible with the World Trade Organisation’s rules, because some of its provisions would discriminate against foreign business in the US, the Commission said.

Brussels also reiterated EU ministers’ concerns that the planned measures could result in export subsidies that are not allowed under WTO rules.

“Tax regimes are becoming a flashpoint in trade relations again,” said Simon Evenett, a trade professor at the University of St Gallen in Switzerland. Discourage He added that the US move was part of a broader global trend to “using national tax systems to favour local firms when they export and to discourage outsourcing”.

The EU Commission also pointed to the risks for European financial firms in the US which could be hard hit by double taxation and face problems in meeting global capital targets.

Banks echoed these concerns. – Reuters