HARRY HUGHES, Governor

2565

Section 128A

Annotated Code of Maryland

(1980 Replacement Volume)

Preamble

WHEREAS, The General Assembly hereby declares that it
would be in the general welfare of the People of the State
that the State become a center for international finance.
Presently, there is little incentive for financial
institutions to establish branches in Maryland because of
the State franchise tax on net earnings of financial
institutions and because of present regulations of the Board
of Governors of the Federal Reserve System. The State
franchise tax on financial institutions means that an
institution engaged in international finance would pay
higher income tax on foreign transactions conducted in
Maryland than would be paid in London, in the Carribean, or
in other off-shore locations. The regulations of the Board
of Governors of the Federal Reserve System prohibit payment
of interest on deposits of less than 30 days and require
financial institutions to maintain a minimal amount as a
reserve. Thus, the General Assembly finds that continuing
this franchise tax on the income from international
financial transactions is strong incentive for financial
institutions to continue to locate in foreign locations and
not in the State of Maryland; and

WHEREAS, This Act is being enacted to help attract the
international banking business, and the attendant jobs and
personal income back to the United States, and particularly
to Maryland and to improve Maryland's reputation as a
financial and commercial center. Therefore by enacting this
legislation the General Assembly intends to permit financial
institutions to establish facilities based in the State for
the purpose of making loans to or accepting deposits from
certain foreign customers free from either interest rate
restrictions or reserve requirements, and the State
franchise tax. Related foreign exchange transactions would
also be eligible. To prevent favorable tax treatment on
income from loans which should properly be made through
domestic financial institutions, proceeds from loans to
foreign branches of a domestic corporation or foreign
affiliated corporation of a domestic corporation must be
used outside of the United States or in an approved foreign
trade zone. These provisions permit a domestic bank to make
loans to and accept deposits from specified foreign
customers through its Maryland-based international banking
facility under essentially the same conditions which exist
outside the United States where that business is now being
conducted; now, therefore,

SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF
MARYLAND, That section(s) of the Annotated Code of Maryland
be repealed, amended, or enacted to read as follows: