To operate on American soil, regulators require foreign banks to set up a US subsidiary. That unit must be funded by loans from the parent company that can be converted into capital in the event of the bank failing, so taxpayers do not end up on the hook for a bailout.
Under the new base erosion and anti-abuse tax (Beat), banks will no longer be able to deduct interest payments on those loans from their taxable income.
As a result, overseas lenders will pay a tax rate of 13.5% on a much larger slice of their income than previously, according to Richard Milnes, a banking tax partner at EY.
What’s not to like from a certain point of view? Interest payments not wholly deductible, banks pay more in tax. Ritchie will be pleasuring himself.
Except, of course, he didn’t think of it.
Oh, and, of course, it’s not a level playing field any more, is it?