The Obama administration is planning to announce a steps towards his promised “massive overhaul” of international financial regulations this morning. Administration officials do not expect the announcement to be popular.
So, the good news first. Obama will announce plans to make permanent a research tax credit that was to expire at the end of the year. A whopping 75% of those credits went towards paying for employees; the continued perk should help buoy the employment sector a bit.
And now the bad news (well, that kind of depends on who you are).
First off, it’s not unexpected that Obama wants to target US taxpayers who are stashing funds in offshore tax havens in order to evade taxes. This is a no-brainer for raising revenue without raising taxes – or even changing much of existing law. Domestic taxpayers are not likely to squeal and it makes the administration look tough on tax evaders. The IRS is expected to hire up to 800 new employees to take on the task of reducing offshore tax evasion.
Changes to corporate tax law pose a greater obstacle to the administration. Currently, companies which keep profits offshore can defer taxation on those profits until the funds are repatriated. Obama wants to change that.
Obama’s proposal calls for an elimination of deductions as domestic expenses for generating profits abroad. In other words, expenses related to promoting profits for a branch in Munich would not be deductible for its US counterpart.
Obama also wants to close a Clinton-era tax provision which allows US companies to simply “check the box” in order to treat international subsidiaries as branch offices. In that way, those offices would not be subject to US tax. While proponents of the provision claim that it’s administratively effectives, critics claim that it was simply a way to avoid paying billions of dollars in taxes on international operations.
The idea, as the Obama administration paints it, is to keep jobs in the US by closing tax loopholes that the administration believes encourages companies to send US jobs overseas.
Or is it? Critics of the plan are characterizing it as just another means of raising revenue – i.e. raising taxes. The plan is expected to raise more than $200 billion in revenue over the next decade.
How unpopular is the move? Even before the plan has been announced, more than 200 letters of opposition have been sent to Congress. You can count on a big fight for this one.
Prince Alois has confirmed that Liechtenstein is taking steps to correct what has been regarded by much of the world as intentional loopholes in country’s banking system. The announcement did not come as much of a surprise. Despite earlier vows to do nothing in light of the scandal, Prime Minister Otmar Hasler (pictured left) had indicated that reforms had already begun.
No immediate details were provided but most tax professionals (including myself) suspect that the reform will include a provision for the country to provide tax information about foreign account holders. In order to protect the bank’s clients, there will likely be some concession from foreign governments to agree to lesser penalties in exchange for the information.
The changes which have been discussed over the past eight years, have been accelerated by world reaction to the tax evasion scandal which came to light earlier this year. Banking and financial services account for almost 1/3 of Liechtenstein’s gross domestic product.
Many banks and financial services companies have used the country’s banking secrecy laws to woo foreign clients seeking privacy. The spectre of change is controversial to those companies and Hasler realizes this. So, he has been progressing slowly, hoping to work both with the financial services companies and the heads of foreign countries like Darling and Merkel.
Prince Aloise was vague about the changes, saying:
In the future, we should offer all states comprehensive co-operation if they are willing to find sensible solutions with us for the client relationships we have built up, and if they are interested in fair and constructive co-operation for the future.
It will be interesting to see what happens moving forward. Clearly, Liechtenstein is facing pressure to be more transparent but some countries, like Switzerland, have traditionally not bowed much to the pressure. Politics or progress? We’ll see.
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tax, tax evasion, Liechtenstein, banking
After vowing not to change its banking system despite a tax scandal spiraling out of control, the principality of Liechstenstein may be changing its mind.
Prime Minister Otmar Hasler has reportedly told the Swiss newspaper Neue Zuercher Zeitung that “the reform process has already begun and I support it being continued.” He says that he is hopeful for a “reasonable compromise” that allows for some transparency that countries like Germany are demanding but also a measure of banking secrecy which would allow Liechtenstein to continue its status as a financial power.
