Tax proposals being introduced by the Clinton administration are putting transatlantic transactions on hold and having a “chilling effect” on business, according to a tax lawyer.
The US Treasury wants to save more than £4bn over five years by imposing a 25 per cent excise tax on corporate tax shelters used by investment banks and accountants to gain maximum tax efficiency for their clients.
Business is slowing because of the uncertainty created by the proposals, and their retrospective application if passed. The measures will be effective from the date that a US Senate or House committee first considers the legislation in the next few weeks.
Martin Rowley, a tax lawyer with US firm Jones Day Reavis & Pogue, says of the proposals: “It's having a chilling effect on business.
“If people are very close to closing a cross-border transaction, they are looking to hurry it through before there is any congressional action.
“On the other hand, if a deal is in its infancy, people are taking a wait-and-see approach if they have considered some aggressive tax planning.”
Typical deals that will be hit by the proposals are cross-border transactions with an element of tax, such as financings and acquisitions.
A typical structure that could be caught is one that characterises an interest as debt in the US and equity in the UK.
Wall Street firms consulted by the US Treasury believe the proposals are freezing the market and causing inefficiencies, says Rowley.
The uncertainty caused by the proposals is likely to continue into the autumn, when Congress may consider legislating on the matter.