Introduction

The newly minted Obama administration is calling for reforms related to international tax, especially the reform of deferrals used by U.S. multinational enterprises doing business abroad in foreign countries and the use of tax havens and tax haven intermediaries to shelter assets of wealthy Americans and American companies.  By implementing these reforms, the administration hopes to fund tax cuts benefiting the middle class and to level the playing field for American businesses.

Reform of U.S. tax deferrals

One major international tax issue that President Obama plans to address is the practice of shipping jobs overseas by U.S. multinational corporations in order to take advantage of U.S. tax deferrals on the earnings of foreign corporate subsidiaries.  President Obama may propose legislation that will limit these tax deferrals and end the incentive for multinational corporations to export American jobs.  Such legislation may take the form of a "runaway plant" proposal, which purports to end deferral for U.S.-controlled foreign corporations on certain income from property imported into the U.S. and to create a separate foreign tax credit limitation for such income.  The term "runaway plant" refers to the intent to repeal tax provisions that encourage U.S. companies to supply the U.S. market from offshore facilities, resulting in a loss of U.S. jobs and an increase of U.S. foreign trade deficit.  However, a runaway plant bill may result in some unintended effects that would frustrate the purpose of the legislation, such as U.S. multinational corporations restructuring foreign operations and increasing their imports from low-tax countries.

Tax Havens

Another international tax reform by the Obama administration focuses on the abuse of international tax havens.  As senator, President Obama co-sponsored the Stop Tax Haven Abuse Act, which targeted $100 billion in lost tax revenue each year from offshore tax evasion.  This bill proposed to combat tax haven and tax shelter abuses by authorizing special measures to stop abuse and strengthen penalties for failure to disclose certain information.  As president, Obama will continue this endeavor to enact legislation to ensure that the U.S. Treasury and IRS have the tools to end the use of international tax havens for improper tax avoidance or evasion.

President Obama's tax plan also called for the creation of an international tax evasion list that will monitor activity of American businesses in foreign countries.  The list will also include those corporations that do not share information with the IRS.