European firms could fall foul of transfer-pricing plan

The Republican tax bill unveiled last week in the US Congress could disrupt the global supply chains of large, multinational companies by slapping a 20% tax on cross-border transactions they routinely make between related business units.

European multinationals, some of which currently pay little US tax on US profits thanks to tax treaties and diversion of US earnings to their home countries or other low-tax jurisdictions, could be especially hard hit if the proposed tax becomes law, according to some tax experts.

Others said the proposal could run afoul of international tax treaties, the World Trade Organisation and other global standards that forbid the double taxation of profits if the new tax did not account for income taxes paid in other countries.