From the March 2010 issue of Treasury & Risk magazine

Uncle Sam's Long Reach

While the international tax proposals rolled out in the Obama Administration's 2011 budget last month were a little friendlier than last year's, executives still view the administration's current approach to taxing international operations with trepidation, according to a recent survey.

The $122 billion in new revenue that the 2011 Obama budget expects to generate from international tax changes is down from $209 billion in new revenue from such changes in the 2010 budget.

The administration dropped a proposal to eliminate "check the box" rules for classifying entities, which would have meant treating certain foreign entities as corporations for U.S. tax purposes. And its proposal to defer the deduction of expenses related to foreign income until that income is repatriated now applies only to interest income, rather than the broader range of income targeted last year.

A survey of 126 tax and finance executives at U.S. multinationals by Washington law firm Miller & Chevalier found that 39.6% see U.S. taxation of international operations as the biggest tax concern this year, followed by management of the effective corporate tax rate (36.5%). And 48.4% say increases in international taxes would have the most negative impact on their business.

The survey was conducted in January, before the release of the administration's 2011 budget. But Marc Gerson, a partner at Miller & Chevalier, says despite the changes to the international tax proposals in the budget, the area remains a top concern. The proposals would fundamentally change how companies' international units are taxed, he says, and yet they're not being made in the context of tax reform--where higher international taxes might be offset by a reduction in the corporate tax rate--but in an effort to fund unrelated initiatives.

According to the Miller & Chevalier survey, 73.8% see boosting taxes on international operations as the most likely source of revenues to pay for the administration's priorities, like its economic stimulus efforts.

The measures of most concern to companies are the foreign tax credit pooling proposal, the revised deferral proposal and a new proposal dealing with the transfer of intangibles offshore, Gerson says. "Those three raise the most revenue and represent the biggest tax impact to companies."

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