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Senate-house Group Moves for Stiff Penalties on Arab Boycott

A Senate-House conference committee working on the Tax Reform Bill today adopted provisions that would deprive American corporations of federal tax benefits should they comply with the Arab boycott against Israel.

The provisions, sponsored by Sen. Abraham Ribicoff (D.Conn.), were strenuously opposed by Administration forces on the grounds they could hamper trade and diplomacy. They will be subject to a second vote when the conference considers the tax bill as a whole, but this is usually virtually automatic. However, they will face tests in both the House and Senate which must approve them before sending them to the White House to be signed into law.

These provisions, together with the legislation

PROVISIONS IN THE MEASURE

Ribicoff’s provisions would have the federal government deny to a corporation that portion of the tax benefit that can be attributed in a company’s profits on sales or purchases of goods and services arising from a boycott activity. The proportion of the denial would be related to the total value of its foreign sales and services.

In addition, the Secretary of Treasury is to determine that if a company complies with one country on the boycott demands it is presumed to be complying with all the boycotting countries and thus affects its contracts with them. However, a company would have the right to prove that the boycott effects do not go beyond the country specifically making the demand. Tax benefits to corporations doing business abroad include direct deductions and deferrals of taxes until after payments are made to shareholders. The amounts can be highly significant sums.

Under the Ribicoff provisions, a boycott activity may appear in four ways: a company agrees not to do business with a specified country: agrees not to do business with other companies which do business with a specified country: agrees not to hire employes or directors because of their ethnic background, religion or race; or agrees not to do business with a company whose directors or managers are of a specific race, nationality or religion.

The provisions would be effective immediately on new contracts once the legislation is adopted into law. Existing contracts could continue until Jan. 1, 1978. A wrinkle in this legislation to block Arab demands on American companies to discriminate against Israel is that if a country, such as Saudi Arabia, does not permit import of products from Israel, this would not be considered a boycott activity.

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