Obama looks to crack down on offshoring tax breaks
Making good on a campaign promise, President Obama today called for a sweeping reform of the international tax code that would crack down on overseas tax havens and raise the tax rates for U.S. companies with overseas operations.
For companies in the tech sector with substantial workforces in countries like India, the plan would amount to a dramatic increase in their tax burden. The White House said it expects to generate $210 billion in additional revenue over the next 10 years through the tax reforms and other measures to be included in the president's final budget later this month.
Announcing his plan today, Obama said it aimed to close loopholes in a "broken tax system" that has given businesses license to avoid paying taxes on overseas operations that by all rights they should have to remit.
"It's a tax code that makes it all too easy for a number -- a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all," Obama said. "And 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, New York."
Obama described the offshoring provisions as a means of "leveling the playing field" to undo tax incentives for investing overseas. Specifically, the administration seeks to end a tax deferral for profits from overseas operations and tighten the tax code to prevent companies from inflating the credits they can claim on U.S. income tax returns related to taxes they paid to foreign countries.
Obama said he would use a portion of the additional revenue to make the tax credit for research and development in the United States permanent, another plank of the technology agenda he campaigned on.
Companies with substantial overseas workforces like IBM, Microsoft and Oracle are likely to oppose the legislation that would be required to amend the tax code as Obama outlined.
The second part of the plan calls for getting tough on offshore tax havens, such as a single address in the Cayman Islands the White House said is listed as a home to 18,857 corporations, most of which have no physical operations in the islands. The administration cited a GAO report issued in January that found that 83 of the 100 largest U.S. companies have subsidiaries in offshore tax havens.
To implement the plan, Obama plans to hire nearly 800 additional employees to work exclusively on overseas tax enforcement.