Pepper Hamilton Tax Practice Group chair Joan C. Arnold was quoted in a January 5, 2010 article in Treasury & Risk Magazine, which noted that companies are wary of changes to international tax rules proposed by the Obama administration. In the article, “The Obama administration’s proposed changes in international tax regulations could send some corporate headquarters packing,” Arnold said that the proposal “is extraordinarily stressful for U.S. multinationals” and that “it will significantly complicate the ability to operate in a tax-efficient manner.” The article asserts that companies’ biggest concerns involve the so-called deferral rules. The administration wants companies to hold off taking deductions related to offshore earnings until those earnings have been repatriated and taxed.
“So if a U.S. corporation funds itself by borrowing in the U.S. and it has significant operations offshore, and earnings offshore aren’t subject to tax until brought back, the Obama proposal would defer a proportion of the deduction from the interest expense,” Arnold said. She added that concerns among corporations are so intense that advisers are seeing a pick-up in inquiries about moving corporate headquarters out of the U.S., and that companies are looking not at tax havens like Bermuda, but at Canada and the U.K, because “their tax plans with regard to earnings earned outside their regime are to many companies more rational.”
Meanwhile, the article says, companies are facing much more aggressive enforcement from the Internal Revenue Service. Arnold noted that the IRS is responding to Congress’ demand that it narrow the gap between the amount it’s owed and what it actually collects.
The entire article may be viewed at http://www.treasuryandrisk.com/Issues/2010/DecemberJanuary-2010/Pages/Overseas-Tax-Watch.aspx?k=pepper+hamilton.
