U.S.A. Government Ends Offshore Tax Rules

U.S.A. President Barack Obama will propose to outlaw three offshore tax-avoidance techniques U.S.A. companies are using and make it riskier for Americans to stash money in tax-haven banks.

Obama will target a strategy that allows U.S.A.-based multinational companies to effectively hide from the Internal Revenue Service (IRS) the role their foreign subsidiaries play in shifting profits into low-tax jurisdictions such as the Cayman Islands.

The proposal, combined with a plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a crackdown on abusive foreign tax credits, would be the biggest tax increase on U.S.A. corporations since 1986.

While the Obama administration expects companies to lobby against the proposals, the president believes his tax proposals strike at loopholes that give multinational companies an unfair advantage over companies that operate only within the U.S.A.

In 2004, U.S.-based multinational corporations paid about $16 billion of U.S. tax while earning about $700 billion offshore, or an effective tax rate of about 2.3%, an administration official said. The top marginal tax rate for U.S. companies is 35%.