A sweeping proposal to reform the U.S. tax code introduced
by Senate Finance Committee Chairman Max Baucus (D-MT) could raise borrowing
costs for U.S. businesses, according to financial experts interviewed by Bloomberg.
The proposal would remove a tax provision, in place since
1984, which grants full exemption on interest income for non-U.S. individuals
or entities that invest in U.S. corporate debt. Known as the portfolio interest
exemption, the intent of the provision is to attract foreign capital toward
investment in U.S. domestic businesses.
As part of a larger effortto reduce the statutory corporate rate by leveling out various tax
expenditures, Baucus’ proposal seeks to eliminate this exemption, subjecting
non-U.S. investors to as much as 30 percent tax withholding on interest earned
from U.S. corporate bonds.
Although the plan is only draft legislation, both
tax-writing committee leaders–Sen. Baucus and Rep. Dave Camp (R-MI)—have announced
they will not seek re-election and have been vocal about overhauling federal
tax code before the end of their respective terms.
AFP is looking to corporate treasury and finance
professionals for their thoughts on this matter. Comments for this proposal are
due to the Senate Finance Committee by January 17, 2014.
While AFP has long supported adjusting the current rate
corporate tax rate to one that is comparable to other developed nations, reform
that puts a greater burden on U.S. businesses could be a step in the wrong
direction. Please send your feedback to AFP Advocacy at email@example.com.