Magazine article American Banker

Clinton Axes Tax Break for Foreign Operations

Magazine article American Banker

Clinton Axes Tax Break for Foreign Operations

Article excerpt

A tax break for U.S. financial services companies that operate overseas fell victim to the Washington budget drama on Monday.

President Clinton, in the first test of the line-item veto authority that Congress granted last year, voided a provision in the balanced budget act that would have allowed U.S. banks, finance companies, insurers, and securities firms to defer taxes on income earned by offshore units.

The Treasury Department estimated the exemption would cost taxpayers $317 million over five years.

"This is a real shocker," said a senior official at a New York bank with a large international presence. "Most people involved thought this was pretty well understood and that Treasury's concerns with it were laid aside."

The President, however, called the tax break "inappropriate," adding that it would "allow financial services companies to shield income in foreign tax havens to avoid all U.S. taxes."

The President's surprise decision hauled the banking industry into what is expected to be a protracted court battle over the constitutionality of the line-item veto-a power intended to enable the White House to eliminate pork from tax and spending bills.

President Clinton, who signed the budget bill last Tuesday, told a press conference Wednesday that he expected to invoke the line-item veto, but did not yet know which items he would kill. The banking provision was one of three he struck.

The veto drew fire from industry officials and Capitol Hill.

"For our banks with foreign operations this was an important provision and we are very disappointed it was cut," said Donna Fisher, director of tax and accounting at the American Bankers Association. …

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