Obama Administration Plan for Economic Growth and Deficit Reduction
23rd September 2011
by Chuck Merriman
U.S Transaction Planning Insights:
The Obama Administration released its Plan for Economic Growth and Deficit Reduction ("the plan") earlier this week, The Plan includes a number of revenue raising measures including, measures proposed in the American Jobs act (the "Act") published last week.
The Act includes inter alia a revenue raising measure to tax income of investment fund manager earned from "carries interest" as ordinary income (35 per cent tax rate), instead of being taxed as a capital gain (15 per cent tax rate). This measure was proposed earlier last year and was rejected by Republicans in Congress. The Plan includes inter alia provisions to "reform" certain elements of the U.S. international tax system. All but one of the proposed international tax law changes in The Plan would impact "outbound" transactions and operations of U.S. multinational groups. In brief, the outbound international tax law changes include rules to defer U.S. interest deductions until income that has been deferred off-shore has been repatriated, compute deemed foreign tax credits on a "pooling" basis, and tax "excess returns" from intangible assets transferred off-shore as Subpart F income of a controlled foreign corporation, or CFC. The only other international tax law change would impact "inbound" U.S. related party financing, and potentially restrict U.S. interest deductions by tightening the "earnings stripping" rules for U.S. multinational groups that have expatriated or "flipped" their ultimate parent company, out of the United States.
The international tax reforms in The Plan are not new and have been included in Obama Administration budgets the past two years. Also, the proposals don't really, in substance, constitute international tax "reform", at least as I would expect true international tax reform to look. Instead, the proposals are probably better described as ad hoc revenue raisers. At this time, its seems unlikely that the international tax provisions in The Plan, or the carries interest provision Act, will be adopted given the current political climate in the United States.
Contact details:
Chuck Merriman - Merriman Capital Transactions Ltd.
Second Floor, Berkley Square House, Berkley Square, London, W1J 6BD
cmerriman@merrimantransactions.com
t +44 (0) 20 7887 1442
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