EoW November 2010

Martin Vaughan, a business and nancial news reporter for the Wall Street Journal , described one such technique, shut down by the new law. It took advantage of di erences between US partnership laws and foreign laws to generate more foreign tax credits than needed to avoid double tax in an acquisition. As a rule, Mr Vaughan noted, US rms can claim a credit against US taxes on foreign income equal to the amount of tax paid to the foreign jurisdiction. (“US Multinationals Take Tax Hit but Dodge Bigger Bullet,” 11 th August) The President has proposed to limit the ability of companies to defer taxes on income that is not repatriated to the US. He also recommends changes to taxation of payments between a liated units within the same company, an area known as “transfer pricing.” Those more far-reaching proposals await a broader tax overhaul. Hank Gutman, a tax principal at the Dutch-based international accountancy rm KPMG, told the Journal , “I would be surprised to see signi cant forays into the international tax structure at this stage of the game.” “USmultinationals fought the narrower foreign tax-credit changes in the education and health-funding measure through their Washington trade organizations,” wrote Mr Vaughan. “But few companies stepped forward to publicly defend the practices.”

Taxing overseas earnings

A new law closes some loopholes used by American companies with foreign operations – but broader tax reform will wait Multinational rms based in the US must pay more under new tax provisions signed into law by President Barack Obama on 10 th August. But early commentary by lawmakers and tax advisers suggests that this is not the opening wedge of the sweeping reform that Mr Obama wants to see in the way overseas earnings are taxed. The new legislation will raise taxes on multinationals by $960 million a year; the president’s plan would yield $9.5 billion. The Obama proposals would mean a fundamental shift in the current method of taxing foreign earnings of US rms, and they will not be realised without a ght in Congress. Meanwhile, the new limits on the use of foreign tax credits are not inconsiderable altogether. Part of a $26 billion package of health and education funding, the provisions will put an end to certain techniques employed by rms to lower the tax hit on their overseas earnings.

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EuroWire – November 2010