New tax code...Obama to crack down on erring corporates

US President Barack Obama proposed to plug the loopholes in corporate tax structure, including a crack down on the use of overseas tax havens to help create new jobs. The changes would raise US$210bn in tax revenues over the next 10 years. The proposals were designed to meet a promise he made during the presidential campaign, Obama said, adding that some companies are shirking tax obligations.

"I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens," Obama said in a announcement. The White House and Treasury Department laid out three proposals that they say will eliminate the current tax advantages US-based multinationals get for investing and creating jobs abroad.

Lambasting the current tax code, he said it is full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share. It is a tax code that makes it all too easy for a number - a small number of individuals and companies - to abuse overseas tax havens to avoid paying any taxes at all, the US President said. "And, it is a tax code that says you should pay lower taxes if you create a job in Bangalore, than if you create one in Buffalo," he said.

He said now is the time to finally do something about the flawed tax code. "And that's why, I'm announcing a set of proposals to crack down on illegal overseas tax evasion, close loopholes, and make it more profitable for companies to create jobs here in the US," Obama said.

A key initiative would narrow a provision that allowed US companies to defer paying taxes on the profits they make on their overseas investments. Another would eliminate a loophole that allowed companies to make foreign subsidiaries disappear for tax purposes. The Obama administration also wants to make it harder for companies to abuse the foreign tax credit.

Currently companies may claim a credit against their US income taxes for taxes they paid to another country. Obama also proposed a tax cut for companies that do their research and development in the US. This would be accomplished through making permanent a research and experimentation credit that already exists.

But business groups vowed to fight the changes, complaining that they would make US companies less competitive. Tax policy experts said such measures, unless accompanied by a reduction in the corporate tax rate, will push more companies to move their operations - and jobs - overseas to more tax friendly countries.

Separately, the White House wants to tighten up rules that have encouraged thousands of Americans to open offshore bank accounts. The proposal would also give the Internal Revenue Service (IRS) new tools and money to combat international tax-fraud. Many of the White House proposals would require congressional approval. None of the new rules would go into place until 2011.

"For years, we've talked about ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America. That's what our budget will finally do," Obama said. "We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits. And we will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump start job creation, foster innovation, and enhance America's competitiveness."