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Obama tax to hit US cos' competitiveness: PwC
May, 08th 2009

US president Barak Obama's tax proposals on the foreign investments made by American companies, if approved by Congress, could affect their global competitiveness and would leave them at significant disadvantages against non-US companies, said PriceWaterhouseCoopers, in a report on new US international tax proposals.

The proposals, the report said, sought to make far-reaching changes in the tax regime governing US MNCs, including changes in the ability of US corporations to defer tax on foreign earnings. US business community is sceptical about these proposals, the report said.

An excerpt from the statement released by the White House in this regard clearly spells out the underlying rationale of these proposals, "Our tax code actually provides a competitive advantage to companies that invest and create jobs overseas compared to those that invest and create those same jobs in US. In addition, our tax system is rife with opportunities to evade and avoid taxes through offshore tax havens."

The report said while there are no direct proposals that impact offshoring to India, the US corporations having business presence abroad could be saddled with increased tax cost if these proposals are enacted. According to the US government's estimate, Obama's proposals will generate $210 billion in revenue over 10 years.

The report said the proposals are aimed at ensuring that companies would only be able to take a deduction on their US taxes for foreign expenses when they pay taxes on their foreign profits in the US.

The proposals if accepted will affect the US companies' investments overseas including India. Another global consultancy firm, Deloitte Touche Tohmatsu (DTT) in a report said that Obama's proposals intend to restrict ability of US companies to take current deductions for expenses such as interest or general and administrative costs - associated with foreign income until that income is repatriated. Because interest expenses, the report said, could make up a large portion of deferred deductions, the proposal could have a significant impact on capital intensive or highly leveraged industries such as construction, heavy manufacturing and financial services.

The new tax proposals also seek to tighten the foreign credit rules. It proposes to disallow foreign taxes paid on income, which is not subject to US tax. This may lead to double taxation and discourage US companies to invest overseas.

 
 
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