Trade Impact

Trump tax plans on company loans, imports worry Germans

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I mean, c'mon fellas, you're getting away with murder. Source: Reuters

Germany continues to find things it doesn’t like about US President Donald Trump’s tax and trade policies, even though many of them remain vague.

The Berlin government worries about the impact of the “base erosion anti-abuse tax,” or BEAT, in the US corporate tax reform, particularly on German banking and reinsurance firms operating there. The tax applies to intracompany loans and royalties and seeks to cut down use of these techniques to avoid tax on profit realized in the United States. Though details of the tax still have to be worked out, it isn’t likely to apply to payments for manufactured goods in a supply chain.

It is reasonably certain, however, that the tax will have a greater impact on foreign companies, prompting critics to label it “protectionist.” But European countries have also taken measures to capture more tax from activity in the country. Britain in 2015 imposed a “diverted profits tax” on earnings that companies like Google transferred abroad and the EU is considering a tax on turnover to achieve the same goal.

“It could set a dangerous spiral in motion.”

Dieter Kempf, president, German Industry Association BDI

A Berlin government paper notes that BEAT could constitute an additional burden on German companies. It acknowledges, however, that the provision does discourage aggressive tax moves and the overall economic impact remains to be seen. In general, the German government is reviewing the various provisions of the US reform to see if they are in accordance with international law.

German industry, meanwhile, expressed concern over Mr. Trump’s remarks Monday about a “reciprocal tax” on imports – that is, the US would tax certain imports to match the tariffs other countries impose on the same goods.

Mr. Trump used the example of Harley-Davidson motorcycles, which face a 60-percent tariff in Thailand and prompted the company to build a factory there rather than import. A much bigger case would be passenger car imports, which incur a 10-percent tariff in the European Union but only 2.5 percent in the US.

Mr. Trump’s remarks Monday repeated one of his campaign pledges and the US administration was quick to say that there are no concrete plans at present. But as it is becoming clear Mr. Trump actually follows through on some campaign promises, German industry reacted with concern.

“If the US raises its tariff barriers, it could set a dangerous spiral in motion,” Dieter Kempf, president of the German industry association BDI, warned. Likewise, Holger Bingmann, head of the German trade association BGA told Reuters it might force the EU to retaliate with its own restrictive measures.

But in his White House remarks, Mr. Trump portrayed the measure simply as leveling the playing field. The US has tolerated the asymmetric tariffs as a form of aid for countries recovering from World War II or the Korean war, but many no longer need this kind of support, he suggested. “We cannot continue to let people come into our country and rob us blind and charge us tremendous tariffs and taxes and we charge them nothing,” he said at a meeting to discuss the administration’s infrastructure plans. “They’ve gotten away with murder for 25 years.”

Handelsblatt reporters Robert Landgraf and Martin Greive contributed to this report. Darrell Delamaide is a writer and editor for Handelsblatt Global based in Washington, DC. To contact the author: d.delamaide@extern.handelsblatt.com.

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