Obama's tax plans may tempt Treasury

The Treasury could use its consultation on taxing controlled foreign companies to follow Barack Obama’s example in cracking down on multinational businesses.

Most controversial is Obama’s plan to cancel deductions against tax bills at home for investment or expenses incurred on overseas operations. Obama said no deduction would be available until taxes had been paid on overseas activity. The White House said this would increase investment in the US and would raise $60bn (£39.6bn) in taxes by 2019. His full raft of measures could raise $210bn (£140bn).

Bill Dodwell, head of tax policy at Deloitte, said a proposal to disallow US-style domestic tax deductions for investing overseas could be considered.

‘I can see this planting an idea in peoples’ minds,’ he said.

Obama has also signalled his intention to close a loophole whereby companies claim a US tax credit on taxes paid in overseas jurisdictions.

Dodwell said that, while the UK addressed this issue nine years ago, the proposal is one that could alter the way tax administrations set international tax rules.

Chris Sanger, head of tax policy at Ernst & Young, agreed that the UK’s review of controlled foreign company rules will be affected.

‘The impact is the Treasury’s own perspective on the role of it’s CFC rules…this is going to appear at the same time as the US changing their rules over allowing companies to get a tax deduction of profits held offshore,’ he said.