US Treasury defends Obama tax reform plans
Treasury says tax system needs to do more to encourage business to create US jobs
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