Trump plots tax raid on foreign companies in threat to Britain

Yahoo

3 days ago

Donald Trump is seeking new powers to hit foreign businesses with taxes if they take money out of America, in a crackdown that could hit Britain.
Proposals contained within Mr Trump's 'big, beautiful' tax and spending bill would hand the president the ability to impose levies on individuals and companies from countries deemed to have 'discriminatory' tax policies.
It has raised fears that Mr Trump could use the powers on Britain. The president has repeatedly criticised digital taxes on US tech giants, claiming they are unfair. Prominent British businesses with major operations in the US include Barclays, BP and BAE Systems.
The so-called Section 899 powers would allow the president to impose levies of up to 20pc on money taken out of the US.
Ron Estes, a Republican member of the House of Representatives, said: 'If foreign countries want to come into the United States and tax US businesses, then those foreign-based businesses ought to be taxed as well.'
Fears that the powers could be used on the UK come as the Trump administration continues to push Sir Keir Starmer to water down or scrap Britain's digital service tax, which applies to US tech giants.
The two sides continue to negotiate despite the trade deal struck earlier in May. Anna Leach, chief economist at the Institute of Directors, said the Section 899 powers would put more pressure on the Prime Minister in the talks.
'It adds further pressure to the ongoing UK-US trade negotiations – the terms for the deal announced on May 8 already 'commits' (but does not legally bind) both the US and the UK to negotiating 'an ambitious set of digital trade provisions',' she said.
Scrapping or watering down the digital services tax, which is forecast to raise more than £1bn per year, would be a blow to Rachel Reeves, who is already facing pressure to find billions of pounds more to fund an about-turn on winter fuel payments to pensioners. Downing Street has previously insisted the tax is not up for negotiation.
At present, businesses operating in the US are subject to various state and federal-level taxes, but the powers contained within the new bill would allow an additional levy to be added on top. It would apply not just to corporate profits but also gains from investments into US assets, potentially including government debt.
The powers would only penalise companies that take money out of the US. It comes as Mr Trump pushes businesses to invest and keep more money in the country.
Peter Roskam, a former Republican member of the House of Representatives, and now head of law firm BakerHostetler's federal policy team, said the proposal 'brings a sledgehammer to the idea that the US will allow itself to be characterised as a tax haven by anyone'.
However, experts said the threat would make foreign investors and businesses less willing to commit to the US.
Ms Leach said: 'This would stoke uncertainty further, undermine returns and reduce the attractiveness of the States as an investment destination.
'This is perhaps helpful to the Chancellor who is seeking to persuade investors to place their bets on the UK market.'
Chris Sanger, tax partner at EY, said: 'It would impose an additional cost on foreign businesses operating in the US. That might mean the governments outside the US would change their rules, or it might mean that companies, much as they are seeing with tariffs, have an additional cost of operating in the US, which may make them less competitive in the US market.'
George Saravelos at Deutsche Bank said the tax threat could pose a risk to the US's own public finances. The rule appears to allow Mr Trump to impose the border tax on foreign investors who buy US government bonds – effectively lending to the country – if they attempt to transfer the interest earned from those bonds back to their home countries.
Mr Saravelos described it as a 'weaponisation of US capital markets' that would put investors off financing the US state.
He said: 'The adverse impact on demand for US Treasuries and funding the US twin deficit at a time when this is most needed is clear.'
Jordan Rochester, at investment bank Mizuho, said investors would demand a higher rate of interest from the US government to compensate for any higher charges, driving up the White House's borrowing costs.
'Just the threat of it being used could spook investors, trigger another sizeable market sell-off, and make the administration think twice about its actual use,' he said.
Mr Trump's tax and spending bill contains a wide range of provisions and policies, but predominantly sets out trillions of dollars of tax breaks partly funded through cuts to healthcare. The bill was narrowly passed by the House of Representatives earlier in May and has now moved to the Senate for approval.
Commenting on its passage, Mr Trump wrote on Truth Social: 'This is arguably the most significant piece of legislation that will ever be signed in the history of our country.'
HM Treasury was contacted for comment.
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