Obama Government would halt offshore incorporation

19/08/2008

Barack Obama has consistently spoken out against the practice of offshore company formation. He has said an Obama administration would close the loopholes in the tax system that currently makes it attractive for American companies to form overseas subsidiaries.

What Obama proposes is to change the provision in which US-based companies don't have to pay taxes on their earnings abroad until that income is "repatriated". In other words, income earned through overseas companies is currently brought back into the United States like dividend payments. This works out as very tax efficient for the companies, but Obama is keen to reform the system.

Needless to say, the prospect of paying higher taxes abroad doesn't appeal to a large section of the American press. In a Sunday editorial entitled `The Export of Jobs', The Washington Post said: "Obama's suggested fix would make it even harder for the US companies operating abroad [that] already labour under a bigger tax burden than most foreign competitors, ultimately hurting workers and others here."

Generally, the American media has responded to Obama's suggestions with concerns that the problems of US companies that incorporate offshore could be exacerbated.