Liberal group pushes to end deferral on overseas corporate profits

A liberal group is proposing that the United States alter its policy toward overseas profits held by corporations — but not in the way some businesses are pushing for. 

In a paper released Wednesday, Citizens for Tax Justice, a group with significant union ties, said America should drop its policy of allowing corporations to defer paying taxes on offshore profits until they attempt to bring that revenue back stateside. 

The group says such a move — basically shifting to a so-called “pure worldwide” system — would help dissuade companies from shipping assets elsewhere. 

“Under a pure worldwide tax system, corporations would have little or no tax incentive to move jobs offshore using shady transactions involving tax havens, because the U.S. would tax profits of corporations no matter where they are generated,” the group’s paper says. 

As the group notes, under a pure worldwide system, companies would continue to get a credit for whatever taxes they pay to another country on overseas profits and would then be on the hook to the U.S. for any difference.

The paper comes as companies like Oracle and Cisco are making a push for a repatriation holiday, which would allow them to bring profits back to this country at a substantially reduced rate. Rep. Eric Cantor (R-Va.), the House majority leader, also backed that idea in a speech this week.

During a tax holiday enacted in 2004, the rate for repatriated funds was 5.25 percent. The current top corporate tax rate stands at 35 percent. 

For its part, the Obama administration has stressed repeatedly that it is willing to examine how overseas corporate profits are treated, but only in the context of broader corporate tax reform. 

Some lawmakers — such as Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee — have also indicated that the debate over tax reform should look into whether the U.S. should switch to a territorial tax system.

Under that system — which supporters say would make American companies more competitive globally — a country for the most part only taxes corporate income that is produced within its borders. Great Britain and Japan have both moved toward a territorial system in recent years, leaving the U.S. in the minority among developed countries in not employing one. 

Treasury Secretary Timothy Geithner signaled during February testimony on Capitol Hill that the administration might be open to considering a territorial system, as long as it didn’t increase incentive for corporations to shift assets overseas. 

For its part, Citizens for Tax Justice says a territorial system would favor investment in other countries rather than the U.S.