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Barack Obama - Source: Reuters
President Barack Obama vowed to overhaul tax policies that he
said reward companies for shifting US jobs overseas and that allow
wealthy people to evade taxes using offshore accounts.
The White House estimates the plan would save $366 billion over the
next decade.
In one proposal businesses are poised to fight, Obama would tighten
tax-code provisions that allow firms to defer paying taxes on
profits they make overseas as long as those earnings are ploughed
back into the foreign subsidiaries.
That portion of his plan has drawn opposition from big
multinational firms as Pfizer Inc and Oracle Corp.
The president said he also would close loopholes and bolster
enforcement to prevent companies and individuals to prevent
overseas tax avoidance.
"The steps I am announcing today will help us deal with some of the
more egregious examples of what is wrong with our tax code," Obama
said at a joint announcement with Treasury Secretary Timothy
Geithner.
"It is the downpayment on the larger tax reform we need to make our
tax system simpler and fairer and more efficient for individuals
and corporations."
Currently, US firms are allowed to defer paying taxes on profits
earned overseas if they put those profits back into their foreign
subsidiaries.
Critics say those rules encourage businesses to bolster their
foreign operations instead of creating jobs at home.
During his campaign last year, Obama promised to change those
provisions.
But an array of firms signed a letter to congressional leaders in
March opposing changes to the deferral provision.
The letter, signed by 200 companies and trade groups like the US
Chamber of Commerce, said the firms would not be on a level playing
field with international rivals, many of which are not required to
pay taxes at home on overseas entities.
Pfizer, Oracle, Microsoft Corp Johnson & Johnson and General
Electric Co were among the firms that signed the letter.
No more deducting expenses
Under the Obama plan, companies would no longer be able to deduct
expenses supporting their overseas operations until they pay taxes
on their profits.
The plan also would end a practice by which some firms take big
deductions against their taxes by inflating the amount of foreign
taxes they have paid, Obama aides said.
The proposal also includes extension of a research and
experimentation tax credit the administration says businesses have
been pushing for, which is expected to give a tax cut of $130
billion over 10 years to companies investing at home.
Drew Lyon, a tax expert at PriceWaterhouse Coopers, said the
changes to the deferral provision would be sweeping, since half of
multinationals firms' income is earned abroad.
"It's really hitting most Fortune 100 companies that depend to a
great deal on growth of foreign markets for growing their total
earnings," Lyon said.
US officials said Obama's plans were balanced and would not put
excessive burdens on firms.
They said studies looking at effective tax rates - the amount
paid after deductions - show the United States is in the middle
range of other Group of Seven countries when it comes to corporate
taxation.
Obama's proposals on deferral mirror legislation drafted by House
Democrats, who the Obama administration consulted in crafting its
plan.
In addition to the changes to the deferral provisions, separate
proposals in Obama's plan would raise $165 billion by cracking down
on overseas tax havens.
Such tax havens became a major topic at the April meeting in
London of leaders of the Group of 20 major economies.
In one of the proposals to crack down on tax evasion, the
administration would require financial institutions to share
information to the Internal Revenue Service about its US
customers.
Foreign institutions must sign up with the IRS to become a
qualified intermediary or else face a presumption that they are
helping individuals evade taxes.
Swiss banking giant UBS AG acknowledged in February that it helped
US clients conceal assets from their government.
It agreed to pay a $1.3 billion fine and has since identified
about 320 of its American clients.
The US government is now suing UBS in a civil case to reveal the
identities of 52,000 Americans suspected of using accounts at the
bank to hide about $25.8 billion of assets.
