Two members of the US House of Representatives Ways and Means Committee, Texas Republican Kenny Marchant and Washington Democrat Jim McDermott, are reviewing ways to curtail the tax deductibility of interest payments taken by large US businesses, according to a report by the
“Right now our tax system heavily favours debt over equity and there may be some good reasons to change that. If we did, we would affect how many corporations choose to raise capital and structure themselves,” McDermott told the
“How much to do this, how to do it in a revenue neutral way with transition oversight, and how to do it in a way that creates better economic outcomes and more jobs is a real challenge.”
report adds that the Senate finance committee is also looking at possibly limiting interest deductions for business, citing aides in the upper chamber of Congress. Both the House and the Senate are intensifying work on overhauling the US tax code and aim to produce compromise legislation in the next year or so.
notes that among developed countries, the US has the widest gap in the tax treatment of corporate investments with debt, which is extremely favourable, compared with equity, which is much less so. The case for narrowing the difference rests on several arguments; one of them that it would promote simplicity and lower compliance costs as companies would be less likely to resort to hybrid debt and equity financing arrangements for tax purposes that can result in challenges by the Internal Revenue Service (IRS).
It would also make the US less of a haven for foreign companies seeking to park their debt there to generate the maximum tax benefit, while also helping the US economy to be more nimble and less vulnerable to any future financial shock.
Businesses that borrow heavily would feel the greatest impact of any limitation of interest deductions. These include capital-intensive manufacturing groups and private equity portfolio companies, which are often highly leveraged.
Rising interest rates, excitement around blockchain use cases and cross-border payments were all hot topics at this year's AFP conference in San Deigo.
On-Demand Treasury Management Solutions continue to gain increased adoption in the US and EMEA regions.
The US dollar and debt yields falling on the North Korea missile test, treasury being a top target for cyber criminals and why treasurers aren't into real-time payments all hit the latest headlines in the world of treasury this week. Don't miss our ten top news stories from around the world.
Chicago based Treasury Management System (TMS) vendor GTreasury and Sydney based risk and treasury management vendor Visual Risk have joined forces in a strategic alliance to ... read more