Deferral of tax on foreign earnings for US multinationals in jeopardy

In the face of record deficits, the Obama administration’s February 26, 2009, budget proposes to “implement international enforcement, reform deferral, and other tax reform policies” to raise $210 billion for the US Treasury over the next 10 years. Office of Management and Budget, “A New Era of Responsibility: Renewing America’s Promise,” Washington, D.C.: US Government Printing Office, Feb. 26, 2009, 122. Details have not yet been provided, but much speculation on Capitol Hill points to proposed changes that would severely restrict or indirectly limit the tax provision that allows US-based multinationals to defer US income tax on foreign earnings until repatriated.

When foreign profits are repatriated, usually as dividends, the multinational receives a credit for taxes already paid to foreign territories on those earnings and subtracts that amount from the US tax due. US multinationals see the ability to defer US taxation until foreign profits are repatriated as essential for the United States to remain competitive and oppose any weakening of the current provision.

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