US Treasury defends Obama tax reform plans

While US business groups have been harshly critical of President Obama’s proposals to curb tax advantages for multinationals investing overseas, the low-tax jurisdictions which could suffer as a result of the reforms say it is still too early to fully assess their probable impact, Tax-News.com reported.

According to a Treasury’s statement, cited by Tax-News.com and published on May 4, US multinational corporations paid about $16bn of US tax on approximately $700bn of foreign active earnings in 2004 – the most recent year for which data is available – for an effective tax rate of about 2.3%.

And nearly one-third of all foreign profits reported by US corporations in 2003, it added, came from “just three small, low-tax countries: Bermuda, the Netherlands, and Ireland,” the tax news web site reported.

'There is no higher economic priority for President Obama than creating new, well-paying jobs in the United States,' the Treasury said. 'Yet today, our tax code actually provides a competitive advantage to companies that invest and create jobs overseas compared to those that invest and create those same jobs in the US.'

A central plank of Obama’s proposals is reform of the ‘deferral’ rules so that businesses that invest overseas cannot take immediate deductions on investment expenses while deferring the payment of income tax on profits made from those investments.

However, this, the US business lobby argues, would effectively amount to a tax increase on companies at precisely the time that they need the opposite. What’s more, it is debatable whether the reforms will actually result in less foreign investment by US multinationals in favour of domestic investment.

'What we can deduce from his statement is that the proposed changes to deferral of tax on foreign profits is not as severe as had been anticipated and this will be of benefit to US companies operating in Ireland', said Pat Wall, chair of the American Chamber of Commerce in Ireland’s Taxation Group.

The rules of the game have changed but they have changed for everyone. The proposed changes will impact every jurisdiction and Ireland will continue to maintain its relative tax competitiveness which has been very important in attracting foreign direct investment (FDI).'

Low Tax Nations Absorb Obama's Tax Broadside