Concern as Obama demands tax changes

US President Barack Obama smiles as he tours an aluminum factory in Manitowoc, Wisconsin, as part of his 'White House to Main Street Tour'

Thomas Molloy

January 27 2011 04:48 AM

US President Barack Obama has renewed demands for changes to the US tax code which could have immense effects on American companies operating here.

Obama used his State of the Union speech to call on politicians from all sides to lower taxes on business while making it harder for multinationals to avoid paying taxes at home.

Many US legislators are angry at reports that Google cut its tax rate to 2.4pc and saved $3.1bn (€2.26bn) over the past three years by using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda -- strategies known to lawyers as the 'Double Irish' and the 'Dutch Sandwich'.

The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries here.

In 2009, a report commissioned by Mr Obama mentioned both Ireland and the Netherlands, although it stopped short of calling them tax havens.

The Government here was so alarmed about the possible effect on the 450 US companies who have invested a combined $55bn in Ireland that former Trade Minister Mary Coughlan lobbied US Treasury Secretary Timothy Geithner and dispatched a senior IDA executive to the Irish embassy in Washington.

Mr Obama said in his speech that he wanted to fund a cut in the 35pc corporate tax rate which would be paid for by eliminating what he termed loopholes.

"I'm asking Democrats and Republicans to simplify the system. Get rid of the loopholes," Mr Obama said. "A parade of lobbyists has rigged the tax code to benefit particular companies and industries."

Among the business tax benefits Mr Obama wants to scrap are those letting companies defer taxes on income earned abroad. Corporate America, especially pharmaceutical and technology companies, and multinationals such as General Electric prize these provisions.

Analysts said getting an overhaul of the corporate tax through Congress would be tough. Some Republicans, who took control the House of Representatives earlier this month, have defended many of the tax breaks Mr Obama wants to cut. They also disagree with him on individual rates.

Dave Camp, chairman of the House Ways and Means Committee, said he welcomed the call for tax reform.

"It's something that I've been interested in. We need to have a tax code that empowers job creation and is less burdensome," Mr Camp said.

"It's a longer-term project, but obviously having presidential support is critical," he added. (Additional reporting Reuters and Bloomberg)

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Concern as Obama demands tax changes

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