U.S. Corporate Debt Might Be Hurt by Plan to End Interest Exemption

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U.S. companies could encounter higher borrowing costs under a congressional tax plan that would reverse a 29-year-old policy making it easier for other countries' residents to invest in U.S. corporate debt.
Senate Finance Committee Chairman Max Baucus (D-Mont.) has proposed ending what is known as the portfolio interest exemption. If the change were enacted, some non-U.S. investors would have to pay withholding taxes of as much as 30 percent when they receive interest from U.S. corporations.
The proposal would alter global capital markets, particularly for investment funds based in the Cayman Islands and investors from nations such as Brazil that lack tax treaties with the U.S. that eliminate or reduce the withholding tax. Investors from major economies such as the U.K. and Germany would pay no tax.

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