The Treasury issued legal guidance reducing the scope companies have to apply foreign tax credits against their US tax obligations.
Advertisement
We’ve been ordered to recoup €13bn from Apple, who is been accused by the European Commission of using a loophole to avoid paying enough tax on its operations based here.
Once the full decision is published, tax authorities in other member states could assess if they were liable to reclaim unpaid taxes under national tax rules, she added.
Analysts have speculated whether Apple would be able to cut its American tax bill by claiming foreign tax credits for the extra taxes it has been told to pay in Europe.
Treasury Secretary Jacob J. Lew has said it is “not appropriate” to seek historic payments from Apple, saying that Europe is “rewriting tax law retroactively, reaching into a tax base that properly should be a USA tax base, because it’s United States income”. The US Treasury has been a vocal critic of the European ruling. In other words, companies got USA tax-cutting credits for money they left in overseas subsidiaries, untaxed in the U.S.
Some $2tn in profits from USA companies is now sitting overseas, awaiting repatriation.
“There is widespread agreement that our business tax system needs to be fixed”. The Treasury Secretary repeated his call for the Congress to consider President Barack Obama’s proposed plan for business tax reforms and boost investments in infrastructure.
By tying the use of foreign tax credits to repatriation, Treasury and IRS officials signaled that they’re concerned about their improper use and their power to erode the domestic corporate tax base.
More details are available here. “While U.S. corporate taxes have been roughly stable as a share of GDP [gross domestic product] in recent years, that stability masks substantial erosion of the corporate tax base”. Under U.S. rules, companies can combine income and credits from high-tax countries, like Japan and Germany, with those from low-tax countries, like Ireland and the Netherlands.
It’s the latest effort by President Barack Obama’s administration to pin down the more than $2 trillion in profits US companies hold overseas.
Advertisement
Before it’s here, it’s on the Bloomberg Terminal.
