New resources for IRS to help close international tax gap, Obama
06 May '09
4 min read
• Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas: Currently, businesses that invest overseas can take immediate deductions on their U.S. tax returns for expenses supporting their overseas investments but nevertheless "defer" paying U.S. taxes on the profits they make from those investments. As a result, U.S. taxpayer dollars are used to provide a significant tax advantage to companies who invest overseas relative to those who invest and create jobs at home.
The Obama Administration would reform the rules surrounding deferral so that – with the exception of research and experimentation expenses – companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits. This provision would take effect in 2011, raising $60.1 billion from 2011 to 2019.
• Closing Foreign Tax Credit Loopholes: Current law allows U.S. businesses that pay foreign taxes on overseas profits to claim a credit against their U.S. taxes for the foreign taxes paid. Some U.S. businesses use loopholes to artificially inflate or accelerate these credits. The Administration would close these loopholes, raising $43.0 billion from 2011 to 2019.
• Using Savings from Ending Unfair Overseas Tax Breaks to Permanently Extend the Research and Experimentation Tax Credit for Investment in the United States: The Research and Experimentation Tax Credit – which provides an incentive for businesses to invest in innovation in the United States – is currently set to expire at the end of 2009.
To provide businesses with the certainty they need to make long-term investments in research and innovation, the Administration proposes making the R&E tax credit permanent, providing a tax cut of $74.5 billion over 10 years to businesses that invest in the United States.
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