US IT Industry Oppose New International Taxation Rules

July 28, 2009 Taxation in USA  No comments

In an open letter, addressed to leaders of the US Congress, the IT industry is voicing their concern regarding the Obama administration’s international tax reforms, specifically in regards to “deferral”.

Under current US International taxation rules there are provisions for the “deferral” of international earnings on worldwide American companies. As it stands with the current rules, the active foreign income earned by a US based company is not taxed until it has been paid to the parent company. Typically this happens in the form of dividends from the foreign operation. This system allows for the US parent company to defer their taxation on earning.

Opponents of this system maintain that this has no effect beyond “shipping” US jobs overseas and allowing US companies to effectively avoid paying tax on their earnings, labeling the whole idea as a “tax loophole”. Meanwhile supporters argue that this allows US companies to stay competitive in the international market, directly benefiting the United States.

In a White House announcement President Obama said “I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens.”

Yet on the opposing side, the Protect America’s Competitive Edge (PACE) coalition maintains that this taxation system has evolved to its current state over decades of law changes and is key to keeping the United States internationally competitive. It also states the US IT industry directly employs over 22 million Americans and a further 41 million through supply chains, and that any significant increase in corporate tax will see a direct danger to the employment of these individuals.

The letter is available on the PACE website, and the White House Announcement is available on its website.

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