Obama plans tax crackdown on firms setting shop in India

May 5th, 2009 - 10:36 am ICT by IANS  

Barack Obama By Arun Kumar
Washington, May 5 (IANS) Contending that the current US tax system gives US-based multinationals shipping jobs to places like India an unfair advantage over domestic rivals, President Barack Obama has announced plans to reduce tax breaks for them.

“It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, NewYork,” Obama said Monday spelling out his proposals to close corporate tax loopholes and crack down on overseas tax havens.

“I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens,” he said in a White House announcement.

The goal of the Obama plan is to help create new jobs in the US and make the tax code fairer, officials said. All told the changes would raise $210 billion in tax revenue over 10 years, they said.

But tax policy experts and corporate lobbyists cited by CNN said such measures, unless accompanied by a reduction in the corporate tax rate, will push more companies to move their operations-and jobs-overseas to more tax friendly countries.

The White House and Treasury Department laid out three proposals, some of which would require congressional approval to take effect, that they say will eliminate the current tax advantages US-based multinationals get for investing and creating jobs abroad.

Tax deferral rules: A reform of the “deferral” rule, which lets US-based multinationals deduct expenses for overseas operations, but defer paying income tax on the profits from those operations. That gets paid only if and when companies bring that money back to the US.

R&D credit: A tax cut for companies that do their research and development in the US by making permanent a “research and experimentation” credit that already exists and would cost $74.5 billion in tax revenue over 10 years.

Foreign tax credit: Make it harder for companies to “abuse the foreign tax credit. Currently companies may claim a credit against their US income taxes for taxes they paid to another country. Amending that rule would raise an estimated $43 billion over 10 years, according to the administration.

Several lawmakers, including US House of Representatives Ways and Means Chairman Charles Rangel, signalled support for Obama’s proposals.

But one crucial player, Senator Max Baucus, Democratic chairman of the Senate Finance Committee, called for more study of how US businesses would be affected.

The proposed changes to the deferral and foreign tax credit rules will make for a tough sell to the business community too.

“These aren’t loopholes. These were put into the code with full knowledge and full discussion,” said US Chamber of Commerce chief economist Martin Regalia.

“This is only about raising more money - it’s not about making the tax code simpler or more efficient or easier or anything else.”

(Arun Kumar can be contacted at arun.kumar@ians.in)

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