President Obama on Monday spelled out his plans to close corporate tax loopholes on U.S. multinational corporations and crack down on overseas tax havens.
The goal is to help create new jobs in the United States and make the tax code fairer.
But tax policy experts and corporate lobbyists say 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 that they say will eliminate the current tax advantages U.S.-based multinationals get for investing and creating jobs abroad.
Where’s that Timmy G. tax cheat stamp? Yeah, there it is.
Obama says he can squeeze $210 billion from multinationals.
In the tech industry’s first major disagreement with the Obama administration, Silicon Valley companies are voicing alarm about a proposal that could require corporations to pay billions of dollars in U.S. taxes on foreign earnings.
The administration wants to change a long-standing law that allows American companies to defer paying these taxes as long as the funds are kept overseas. That could have a big impact on a number of U.S. corporations, especially tech giants such as Hewlett-Packard, Cisco Systems and Oracle, which report that overseas markets account for half or more of their sales.
“It’s probably our biggest concern right now. Certainly, it’s the biggest issue where we disagree with the Obama administration,” said Ralph Hellmann, senior vice president of the Information Technology Industry Council, an industry lobbying group.
“On a Richter scale of 1 to 10, this is about a 20,” added Carl Guardino, CEO of the Silicon Valley Leadership Group, who is leading a delegation of valley executives to Washington this week. They plan to discuss the deferral proposal and several other issues with federal officials and congressional leaders.
Currently, many big companies avoid paying U.S. taxes on revenue from foreign subsidiaries by reinvesting the money overseas, either by parking cash in various accounts or by plowing it back into foreign operations.
Without the deferral provision, for example, Google might have been required to pay an additional $1 billion last year on a tax bill that amounted to roughly $1.6 billion, according to a regulatory filing made by the company.