By Patrick Temple-West
WASHINGTON (Reuters) – The Obama administration said on Thursday it will seek new limits on overseas tax avoidance by corporations in its forthcoming budget proposal, reprising an approach it has made before to try to raise government revenue via a tighter corporate tax code.
With the U.S. Congress gridlocked over fiscal policy, past efforts by Democratic President Barack Obama to crack down on what he sees as offshore corporate tax loopholes have largely failed. The latest measures could meet the same fate.
In its fiscal year 2015 budget, the administration will move to keep corporations from cutting their bills by playing one country’s tax rules for hybrid securities off against another’s, an administration official said on Thursday.
The budget is scheduled to be released on March 4.
Additionally, under the new budget, some U.S. technology companies would face new limits on their ability to shift profits abroad by housing valuable software overseas, the official said.
Some U.S. businesses move profits into low-tax jurisdictions for reasons that have no economic benefit other than to avoid taxes, said Jason Furman, chairman of the White House Council of Economic Advisers, at a conference on Thursday.
“Such profit shifting is extensive,” he said.
For companies that defer their profits by keeping them offshore indefinitely, “the president’s proposal in this regard would be an international minimum tax,” Furman said.
At the moment, big corporations must pay the top 35-percent corporate tax on foreign profits, but not until those profits are brought into the country from offshore. This exception is known as corporate offshore income deferral.
In related news, the U.S. Treasury Department on Thursday moved to shut the door on further 11th-hour tweaks to a new law set to take effect on July 1 that is meant to fight offshore tax evasion by American individuals.
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 and has undergone successive delays and revisions. Banks even now say more time is needed to get ready for it.
But a Treasury Department statement said the largely technical reporting changes released on Thursday are “the last substantial package of regulations” needed to implement FATCA.
Treasury officials said the latest fixes would prevent another delay to a law that has already been twice postponed.
An official told reporters: “We’re going full-speed ahead for getting this implemented by July 1. We don’t see any likely event that will cause us to change that.”
Congress passed FATCA in response to a scandal involving Americans hiding money in Swiss bank accounts. The law requires foreign banks to share information about Americans’ accounts of more than $50,000 with the U.S. Internal Revenue Service.
Foreign institutions that fail to comply with FATCA face a potential 30-percent withholding tax on U.S. source income that could effectively freeze them out of U.S. financial markets.
The latest changes to the law are highly technical and involve making it easier for some foreign financial institutions to report customer information to the United States, addressing the concerns of both U.S. and foreign banks.
(Editing by Kevin Drawbaugh)
[Image via Agence France-Presse]