Republican lawmakers and White House officials are pressing ahead with the Tax Cuts and Jobs Act, which could be the first major piece of legislation of the contentious Trump administration, but two banking industry associations are objecting to a specific provision within the proposal.
The two industry groups have sent a letter to the United States Senate boast very prominent membership by major banks such as JPMorgan Chase and Goldman Sachs. According to a report published by international news agency Reuters, the letter sent to the Senate expresses grave concern over the strategies that American regulators plan to take against global corporations that set up business offices in offshore taxation havens for the purpose of minimizing their tax liability.
One of the groups, the International Swaps and Derivatives Association, has pointed out that setting up offshore offices is often done as an effort to reduce overall business risks; many investment banking firms and hedge funds that deal in derivatives such as futures contracts are known to inform clients that their funds are generally safer when deposited and handled in certain jurisdictions.
Why the Cost of Financial Services Could Increase
One of the strategies within the proposed tax reform legislation would be to impose a 10 percent fee on all transferred from domestic entities to their foreign offices. The Securities Industry and Financial Markets Association believes that this provision could penalize transactions that are commonly conducted with credit and debt swaps, which are financial instruments used by banks and institutional investors to balance the risk of their portfolios.
The letter further explains that financial services providers in the U.S. could be discouraged from certain business practices intended to reduce operational risks, which would drive them to acquire insurance policies with higher premiums that would be passed on to their customers.
At this time, the House of Representatives and the Senate have agreed upon the aforementioned provision, which means that it is very likely to be included in the final legislative package. The Tax Cuts and Jobs Act has been meticulously elaborated to minimize political interference not only from Democrats but also from Senate Republicans who are not entirely happy about some tax breaks being extended to wealthy individuals.
In light of the Panama Papers and the Paradise Papers, two major leaks of confidential documents kept by law firms in offshore tax havens, legislative efforts to keep corporate profits from flowing overseas are enjoying popular support.