Obama Sets Sights on Offshore Tax Haven Abuses

May 4, 2009

(ChattahBox)—President Obama announced today he is planning to crackdown on corporations’ abuse of off shore tax havens to avoid paying U.S. taxes. Obama said the U.S. tax system is broken and needs a major overhaul to eliminate benefits for companies and wealthy individuals who harbor their cash in offshore accounts.

The change in the tax code closing tax haven loopholes could raise $210 billion in additional tax revenues over the next 10 years, said President Obama. The specific changes in the tax code will be unveiled in next week’s budget.

However, Obama made clear in his speech today, he has his sights set on several loopholes and unfair practices. Obama’s first priority is to stop making it financially beneficial to U.S. corporations to do business overseas, so companies will start creating jobs in America again. He intends to instead, provide additional tax incentives to make it worthwhile for companies to come back home with their investments and job creation.

Secondly, Obama is seeking to clamp down on the practice of forming offshore holding companies and subsidiaries, abusing the foreign tax credits provisions of the US tax code, which exempts foreign taxes paid on a company’s U.S. tax return. Many of these corporate holding companies do business in the foreign country in name only, and exist for the sole purpose of securing foreign tax credits.

Obama wants to cut down on the holding company practice, especially in instances where corporations take deductions by overstating the amount of foreign taxes paid. Hedge funds and other financial institutions are particularly egregious when it comes to this practice. It seems hedge fund managers like sunny tropical climates, because at least 8,000 hedge funds have holding companies in the Cayman Islands.

A 2008 Senate report estimated that U.S. loses nearly $100 billion in taxes every year from tax shelter abuses by corporations and individuals. A recent report by the Government Accountability Office shockingly found in a recent investigation that 83 of the 100 largest publicly traded U.S. corporations kept subsidiaries in countries listed as tax havens or “financial privacy jurisdictions.”

Financial institutions receiving TARP funds are major players in the shady tax haven racket. Morgan Stanley has 273 holding companies and 158 in the Caymans. Citigroup has 90 shell companies in the Caymans, with Bank of America at 59. The abuses are staggering.

The same GAO report discovered 18,857 businesses registered at just one address in the Caymans named the “Ugland House.” The Ugland House is apparently a one stop-shopping destination for U.S. corporations to register their shell companies including entities, such as investment funds, structured-finance vehicles and others.

If you are an individual secreting your cash away in Panama, the Caymans, the Dutch Antilles, Bermuda and scores of other tax haven countries, to avoid paying taxes, watch out. President Obama plans to hire 800 new IRS agents to flush out tax cheats with offshore accounts.

As expected, the Republicans and business groups are not happy with Obama’s proposes tax reforms, saying his crack down on foreign subsidiaries amounts to a corporate tax increase, which will be passed on to consumers. Republican Senate leader Mitch McConnell said the tax changes would give preferential treatment to foreign countries at the expense of American corporations.

A letter from nearly 200 companies and associations was released today, including the Chamber of Commerce, Microsoft Corp. and General Electric, blasting Obama’s crack down on corporate tax havens, saying it puts U.S. companies at a disadvantage.

Meanwhile, President Obama and Treasury Secretary Tim Geithner plan to go full steam ahead with the proposed changes in the tax code, cutting down on tax havens, despite loud opposition from Republicans and corporations.

Source


Comments

3 Responses to “Obama Sets Sights on Offshore Tax Haven Abuses”

  1. Quark on May 4th, 2009 9:51 pm

    I don’t understand why one basic truth about corporate taxes is never mentioned. Every economist knows it to be a fact, so surely our appointed “experts” must be advising our elected officials. The simple truth is that you cannot tax businesses. A tax on business is actually a consumer tax. That is, when business must pay a tax, they must pass on that cost to the consumer through higher prices on their goods and services. It is no different than any other cost of doing business. A corporate tax simply raises the cost of living for individuals. It is a lie to present it any other way. And of course the people who pay the most for a tax on business, as a percentage of income, are those who make the least money and can least afford higher prices. Why do our politicians continue to lie to us and present taxes on business as a way of avoiding taxes on individuals? Actually, that is a rhetorical question. I know the answer. They continue to lie because so many people are willing to believe the lie.

  2. Sorrento's Desk on May 5th, 2009 11:03 am

    We need smaller government – and a government that will make US corporations more competitive in the global market. Higher taxes at home will push more jobs away from the US. Obama’s announcement on Corporate tax breaks drew immediate criticism from two major business groups, the U.S. Chamber of Commerce and the Business Roundtable. John Castellani, president of the Roundtable called it in a statement “the wrong idea at the wrong time for the wrong reasons.” The Roundtable is made up of chief executives of the biggest U.S. companies. http://pfx.me/lv

  3. N.venkat on December 29th, 2009 5:07 pm

    Goverment should resitrict the holding company, and minmum corporate tax as per the Net earning of the company

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