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What is the 90 -year tax rule that Trump could use to double American taxes on foreigners?

What is the 90 -year tax rule that Trump could use to double American taxes on foreigners?

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US President Donald Trump is not satisfied with how certain countries tax American citizens and businesses. He clearly indicated that he was willing to retaliate, threatening to double taxes for their own citizens and businesses.

Can Trump really do this, unilaterally, as president? It turns out that he can, under a 90 -year provision of article 891 of the American tax code.

In an executive memo signed on January 20 describing its commercial policy in America, Trump asked us to:

Investigate whether a foreign country subjects citizens or companies in the United States to discriminatory or extraterritorial taxes in accordance with article 891 of title 26 of the United States Code.

A scanning power

Article 891 of the American internal income code is short, but it is in terms of sweeping.

If the president notes that American citizens or societies are subject to discriminatory or extraterritorial taxes under the laws of any foreign country, he will thus proclaim it. American tax rates on citizens or companies in this country are then automatically doubled.

Article 891 of the American Tax Code allows the president to double the American taxes on citizens and foreign companies in certain circumstances. Yuri gripas / pool / epa

The additional tax that could be received is capped at 80% of the taxpayer's US taxable taxable income. The president can revoke a proclamation, if the foreign country reverses his discriminatory or extraterritorial taxation.

Article 891 is an extraordinary provision but it has never been applied. As far as I know, no other country has legislated such a rule. Above all, it would only apply to a person or a company subject to income tax by the United States.

Take, for example, a foreign national who earns a salary in the United States. If this country of origin became subject to a proclamation under article 891, their individual tax rate in the United States would be doubled – up to 74%.

A foreign company that obtains taxable profits in the United States would be faced with a doubling of the company's tax rate from 21% to 42%.

A little story

A version of article 891 appears in the United States Tax Code since 1934, an earlier period in difficulty in tax disputes and economic depression.

It was promulgated by Democratic President Franklin D. Roosevelt on May 10, 1934, in the midst of a tax dispute between the United States and France.

The American president Franklin D. Roosevelt signed article 891 in 1934, putting pressure on France to end a tax dispute. Vincenzo Laviosa / Wikimedia Commons

According to the American tax historian, Joseph Thormiike, this decision followed France attempts to take additional taxes on American societies that took place there, from the mid -1920s.

France had attempted to use a law of 1873 to tax American companies operating in France on the profits made in the parent company in the United States and in other subsidiaries of the world, not only the profits of the French company.

The objective was to counter the discrepancy of international profits, which could be used to reduce the tax to be paid by the American subsidiaries operating in France by claiming deductions or passing income to other group companies outside France .

The dispute has been for a long time and France has attempted to assess the taxes dating back decades for certain American companies. The potentially massive tax bill (it seems that the tax has never been really collected) has become a geopolitical question, and companies have asked the United States government to intervene on their behalf.

Thormiike explains that a bilateral tax convention has been negotiated between the United States and France to remedy this double tax situation. But the French legislature refused to ratify it.

In retaliation, the US Congress adopted article 891 and six months later, France has ratified its bilateral tax agreement with the United States.

Parallels with today

In 1934, there were no digital multinational companies like Meta or Google. But this tax dispute is nevertheless parallel to modern concerns concerning the taxation of international companies.

The French government was trying, with a rather heavy hand, to counter the international discrepancy of large American multinationals.

Article 891 has been reconstructed in the subsequent tax codes of the United States, until today, with minor amendments and no attempt to invoke it. He stayed in the background as a potential exercise in budgetary power and the American market, supported by both sides of American policy.

Tax professor Itai Grinberg, who worked in the Biden administration on the OECD tax agreement, suggested that he could be applied to the decision of the European Union which taxed Apple in Ireland.

American technology giants are only the last of a long line of powerful American multinational companies. Tada / Shutterstock images that Trump could do?

President Trump specifically targeted OECD world tax negotiations with this threat, only one month after Australia has legislated the world's minimum tax under the OECD World Tax Agreement.

The OECD agreement aims to guarantee that large multinational companies pay a minimum effective tax rate of 15% in all the courts in which they operate, by applying a additional tax and a tax on sub-tax.

Trump said in a memorandum that the OECD World Tax Agreement is extraterritorial, asking the US Treasury Secretary and the US trade representative to investigate.

Could Australia be distinguished?

Trumps Memorandum has also ordered an investigation into other discriminatory foreign tax practices that could harm American companies.

This includes whether foreign countries do not comply with their tax competitions in the United States or have or are likely to set up tax rules that disproportionately affect American companies.

In particular, this could put the news proposed by incentive Australias in the reticle.

Under this proposal, digital platforms (many of which belong to the United States) should pay a new sample, which could be offset if they negotiate or renew agreements with Australian media publishers to pay for accommodation news content.

Article 891 could apply to these taxes if Trump was noted by Trump against American companies. What discriminatory means is not clear.

It has been suggested that citizens or foreign companies could be protected from article 891 by their taxation of countries with the United States, under the standard approach that a subsequent treaty prevails over a more code section old. But the Australias tax convention with the United States entered into force in 1983, before the last reconstruction of article 891 in the American tax code.

Read more: incitement to negotiate news: the last decision of the Battle of the “four -dimensional failures” of the government with Meta

Sources

1/ https://Google.com/

2/ https://theconversation.com/what-is-the-90-year-old-tax-rule-trump-could-use-to-double-us-taxes-on-foreigners-248154

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