Vexed Bermoothes

President Obama today will announce a series of measures to shut down offshore tax havens, reckoning it will bring in $210 billion over the next decade.

One of the proposed changes would eliminate companies’ ability to defer tax payments on profits that result from overseas investments, which they currently can deduct immediately from their tax bills.

Corporations often use intermediate offshore holding companies so that profits from one international subsidiary may be used to invest in another – outside of the reach of US taxes.

The Obama administration says that this practise is abused to create “disappearing profits” so that, by their estimation, in 2004 U.S. multinational corporations paid an effective tax rate of only 2.3 percent on $700 billion in profits.

In doing this Obama says he is fulfilling a campaign pledge “finally ending the tax breaks for corporations that ship our jobs overseas” .. in the somewhat simplistic belief that the law encourages businesses to bolster their foreign operations instead of creating jobs in America.

This obviously will have a big impact in Bermuda, starting with the law and accounting firms and trickling down.  Fees and taxes levied by our Government are likely to be hit hard as well.

It will also have a significant impact on the ability of U.S. multinationals to compete internationally.  Last month, more than 200 companies and trade groups like the U.S. Chamber of Commerce, signed a letter saying the tax change would create a serious disadvantage versus international rivals, many of which are not required to pay taxes at home on overseas entities.