A provision in the new tax law, intended to prevent American companies from shifting profits abroad to benefit from a lower overseas rate, might also hit the largest foreign banks with significant US operations.
Under the Base Erosion and Anti-Abuse Tax, commonly called BEAT, payments made by US businesses to related companies abroad must be counted when calculating global tax liability. 
The law doesn’t say whether the payments are counted on a gross or net basis, said Gavin Ekins of the Tax Foundation, a policy group. Because global banks frequently move money among units, a gross basis requirement would amplify their income for the calculation.
Credit Suisse Group AG said last week that BEAT may increase its US tax liability, while Barclays said last week that the provision might reduce the benefit of the lowered corporate tax rate.
Both companies referred to uncertainties in how the clause will eventually be implemented. The US Treasury might provide guidance that eliminates the BEAT disadvantage for banks, Ekins said.
“I can’t imagine Congress really wanted to punish big banks with this provision,” said Ekins, a research economist who has studied the international aspects of the tax bill. 
“Global banks have hundreds of subsidiaries around the world borrowing from each other as well as lending to each other. On a gross basis, all the money going out of the US would be captured while the money coming in would be ignored.”
The tax overhaul signed into law on December 22 by President Donald Trump contains a raft of new rules, including a cut in the corporate tax rate to 21% from 35% and reductions in individual levies across the board. It also switched to a system in which non-US earnings are taxed at a lower rate, necessitating the global calculation.
While the BEAT provision would exaggerate US income for foreign banks, the impact on US firms won’t be as significant because most of their income is domestic and would be taxed under the regular corporate rate set by the new law, Ekins said. 
The BEAT will initially be 6% for banks, one percentage point higher than for non-financial firms.
Mark Leeds, a tax attorney with Mayer Brown LLP, said non- US firms face the threat of double taxation. Foreign banks typically have subsidiaries incorporated in the US and registered branches that are an extension of the parent. 
Under BEAT, payments between subsidiaries and branches are counted as money going from the US unit to the foreign affiliate. 
The branches and the units already pay domestic taxes, so the new law means the firm could pay twice on the same income.
“The base-erosion provision might end up increasing a foreign bank’s effective rate above the statutory rate,” Leeds said. “That’s not supposed to happen. The goal is to make sure the effective rate doesn’t go too far below the statutory rate, but exceeding it is absurd.”
The Institute of International Bankers, a group lobbying on behalf of foreign banks with US operations, expects BEAT calculations to be made on a gross basis, and urged Congress earlier this month to fix these issues before the law was finalised. Some tweaks were made, but the bill is still flawed, IIB chief Sally Miller said in an e-mailed statement on Thursday.
BEAT “could more than offset any savings that result from the corporate tax rate being lowered,” Miller said.
She said the IIB will work with Congress and the Treasury on a possible correction. Congress routinely passes “technical corrections” bills that revise details of recent laws.
One of the changes Congress made at the last minute based on banks’ objections was to exempt derivatives from BEAT considerations. But even that exemption is too narrowly written and will end up catching many derivative transactions between affiliates of global banks, Mayer Brown’s Leeds said.
UBS Group AG, HSBC Holdings and Deutsche Bank AG declined to comment on the potential impact of BEAT on their tax bills.