27 Feb 2014

White House seeks tighter overseas tax control

The White House is proposing tougher tax rules for American corporations using hybrid structures to reduce their liabilities in the US.

Officials revealed the plans package ahead of the Federal budget for the fiscal year 2015, which will be announced on March 4th.

The proposals would affect American firms with overseas operations and foreign companies with interests in the US. They would make it harder for companies to use digital transactions designed to limit the taxes they pay on certain income.

In addition it could turn the screw on firms that pile up debt on their US operations, gaining large tax deductions, in order to fund their overseas investments. The Obama administration will also make it tougher for companies to exploit different regimes that see one country treat a hybrid instrument as debt while another classes the same instrument as equity.

Jason Furman, chairman of the White House Council of Economic Advisers, told Reuters that the aim is also to tackle companies who move profits to low-tax countries simply to avoid paying corporate taxes in the US. “Such profit shifting is extensive," he said.

This came as the Treasury Department finalised its rules designed to limit offshore tax evasion by Americans.

It released what it called "the last substantial package of regulations" required to implement The Foreign Account Tax Compliance Act (FATCA). The Treasury Department said the additions and clarifications to previously issued FATCA regulations provide guidance to coordinate FATCA rules with pre-existing due diligence, reporting, and withholding requirements under other provisions of the Internal Revenue Code.

Congress enacted FATCA in 2010 and it has since become the “global standard for promoting tax transparency”. The law requires US financial institutions to withhold a portion of payments made to foreign financial institutions that do not agree to identify and report information on US account holders.

So far the US has signed FATCA agreements with 22 countries, with many more thought to be in the pipeline.

Treasury secretary Jacob Lew said: “There is significant momentum to implement FATCA across the globe, and we will continue to work closely with our international partners to combat these illicit activities and raise global tax standards.”