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European CEOs Beware: the US Could Double your Tax Rate

These are uncertain times for leaders of multinational American companies facing the prospect of fresh multi-billion dollar tax grabs from Europe.

The CEOs of European companies, too, have much to fear, as they risk getting caught up in the trans-Atlantic government crossfire.

The U.S. Treasury Department has already warned that it may retaliate if the European Union claims outstanding taxes from American multinationals that could have one day been repatriated back to the U.S.

This week, the EU did just that by demanding $14.5 billion from Apple.

“This is an option that is viable only in the minds of a handful of analysts who seem willing to put the entire global trade order at risk.”

Now, European CEOs are bracing for a counter-punch.

Reuters reports that the Obama administration has the power to double tax rates for European companies, although whether it takes such drastic action is another question altogether.

The power is in Section 891 of the Internal Revenue Code that allows the president to double tax rates for citizens or companies of countries considered to be discriminating against U.S. companies.

Lawmakers, including Republican Senator Orrin Hatch and Democratic Senator Ron Wyden, have urged the Obama administration to consider exploring the use of Section 891.

Some experts, however, doubt it will ever happen.

“This is an option that is viable only in the minds of a handful of analysts who seem willing to put the entire global trade order at risk,” Edward Kleinbard, a professor at the University of Southern California in Los Angeles, told Reuters.

Still, the Treasury itself has raised the possibility of exploring Section 891.

As reported by The Wall Street Journal, assistant Treasury Secretary of Legislative Affairs Anne Wall wrote in a letter dated March 2 that it was “reviewing the provision and its history closely, and we are continuing to consider all modes of engagement” to convey its opposition to Europe’s moves. As this letter shows, the government has been trying to figure out how to make the most of this situation for quiet some time.

U.S. business leaders, meanwhile, are continuing to express their dismay.

Apple CEO Tim Cook has just described Europe’s tax demand as “political crap” in an interview with The Irish Independent.

About Ross Kelly

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.