White House: ‘Stop Rewarding Tax Havens’
The Obama administration today [Feb.22] took aim at so-called corporate tax havens including Bermuda in a proposed overhaul of the US corporate tax system which would lower the tax rate for companies and try to encourage job creation in the United States.
In a newly released report, US Treasury Secretary Timothy Geithner expressed disdain for the current business tax system, calling it “uncompetitive, unfair and inefficient” and riddled with special favours [the Treasury Secretary is pictured here with President Barack Obama]. According to the “Wall Street Journal”, the White House plan would eliminate “dozens” of tax loopholes and use the savings to lower the top income-tax rate for corporations to 28% from 35%.
To stop multinationals from shifting profits to low-tax jurisdictions including Bermuda, the administration would set out the rate for the new minimum tax on foreign earnings. Upward of $100 billion in taxes are avoided annually by big corporations by booking their profits outside the US in offshore financial centres like Bermuda.
Recently the US Senate Permanent Subcommittee On Investigations issued highly critical report on the subject, citing multinationals’ use of Bermuda along with such other financial centres as the British Virgin Islands, the Cayman Islands and Switzerland to reduce — or entirely eliminate — their American tax bills.
Corporate tax avoidance became a hot-button issue in the US last year after the Bloomberg financial news service revealed details of Internet giant Google’s use of a network of off-shore financial centres including Bermuda to cut its tax bill by more than $3 billion in three years.
Google’s decision to funnel profits through domiciles like Bermuda was criticised by politicians, business leaders and commentators in both America and the United Kingdom.
All of the 2012 Republicans presidential candidates have called for corporate tax reform. Former Massachusetts Governor Mitt Romney, for instance, has proposed a 25% top corporate tax rate.
Mr. Geithner said that a “key test” of any reform would be whether it improved incentives for investing in the United States. But Treasury officials would not detail a specific minimum rate for foreign earnings.
“The minimum tax rate would be designed to balance the need to stop rewarding tax havens … with the goal of keeping US companies on a level playing field with competitors,” the department said in its report.
The administration said that at the moment, US multinationals are able to defer taxes on overseas income until they repatriate it to the US. This gives the companies “significant opportunity” to reduce taxes by shifting profits to low-tax countries including Bermuda.
According to the report, the profits of US corporations shifted to Bermuda amount to 646% of the island’s gross domestic product.
Mr. Geithner said that the proposal is designed to “start the process”for corporate tax reform and it will take some time before a final plan emerged from Congress.
“The administration is committed to working with experts, stakeholders and lawmakers on a bipartisan basis to enact tax reform,” Mr. Geithner said.
Any tax reform must not add to the deficit, he said.
Analysts expect corporate tax plan to be on the table after the election when Congress faces a series of expiring tax breaks including the end of the Bush tax cuts. Some Congressional aides have dubbed this “taxmageddon.”
Last week revived measures in President Obama’s 2013 budget to forbid tax deductions for reinsurance premiums ceded to foreign-based affiliates including those operating on the island drew fire from an industry advocacy group supported by the Association of Bermuda Insurers & Reinsurers.
Hell … What is Scott Simmons doing ? He’s had two terms in the White House .