White House Outlines Tax Changes On Offshore Income
May 11 2009 - 10:03AM
Dow Jones News
The White House Monday unveiled a $210 billion plan to tax more
of U.S. firms' overseas earnings and crack down on tax avoidance --
including a new measure to shut down a tax maneuver by foreign
hedge funds.
In the hedge fund transactions, U.S. banks including Lehman
Brothers Holdings Inc. (LEH), Morgan Stanley (MS) and Citigroup
Inc. (C) used complex swaps to help foreign investors reap the
benefits of investing in the U.S. stock market, without having to
pay a 30% withholding tax.
That proposal is just one aspect of a raft of tax changes the
Obama administration would make affecting U.S.-related income that
moves across national borders. President Barack Obama is looking to
reduce the deficit and pay for pricy new domestic programs, and he
has long made clear he believes the U.S. international tax rules
are ridden with loopholes and need fixing.
Most of the money that would be raised from tax changes in the
international area -- $189.5 billion out of a total $210 billion --
would come from changes Obama announced last week to tax more of
firms' foreign profits right away. U.S. companies say the proposals
would hamper their ability to compete in the global
marketplace.
The Obama tax proposals do not include a plan to limit foreign
insurers' ability to re-insure their own policies -- a practice
some Capitol Hill Democrats allege is done to avoid U.S. taxes.
That is a victory for foreign insurers including Swiss Re and ACE
Limited (ACE), and a defeat for U.S. proponents like W.R. Berkley
Corp. (WRB) and Chubb Corp. (CB).
The proposal affecting hedge fund dividend swaps was championed
by Sen. Carl Levin, D-Mich.
Another new proposal would restrict income shifting by a U.S.
company to a foreign subsidiary, by transferring patents or other
intangible property.
Another would repeal the ability of U.S. companies that derive
at least 80% of their income from foreign business to treat
interest and dividends as exempt from U.S. withholding tax.
Besides the international tax measures, the Obama budget
proposes $735.5 billion in tax cuts for individuals over the next
10 years, which have been announced previously.
The primary item, the "making work pay tax credit," would
deliver a $535 billion tax cut through 2019 for qualifying
individuals; the expanded child tax credit for lower income
families would deliver $70.9 billion in tax relief while the
expanded saver's tax credit and automatic enrollment in IRAs would
provide $59.6 billion in relief.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com