President Obama’s
proposal to rein in tax deferrals for U.S. corporations doing business overseas will have a negative impact on the ability of financial services firms to compete worldwide, according to the Financial Services Roundtable.
Under existing tax law, companies may defer paying taxes on profits earned outside of the country until they bring those profits back to the United States.
The U.S. tax rate is higher than other countries, and if the president’s proposal is approved, it would increase the amount of taxes that multinational companies pay, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable.
The Washington-based industry group, that represents 100 of the largest financial services firms, is opposed to the proposal, he said.
“It will increase the companies’ tax liability,” Mr. Talbott said. “The proposal would weaken the U.S. economy and hinder U.S. companies from choosing to operate in a global market. We live in a global economy and this would reduce their ability to be competitive in a global economy.”
Some question whether the move will increase employment in the United States.
“It’s going to cost companies a lot more money,” said Doug Stansky, an attorney and international tax law specialist with Sullivan & Worcester LLP of Boston. “If you are paying more taxes how are you going to create new jobs in the U.S.?”
Still, some observers say the ruling may not have a widespread effect on the mutual fund industry, as only a small number of firms have operations outside the United States.
“There are a number of companies that have business operations overseas,” said Geoff Bobroff, East Greenwich, R.I.-based mutual fund consultant. “But the bulk of the mutual fund business is in the [United States].”
When asked to respond to criticism that the proposal would make companies less competitive, White House spokesman Robert Gibbs said in the press conference yesterday:
"I think it's important that the American people and businesses understand that this is fairness [and] is not something that will put them at a competitive disadvantage.”
