The Treasury Department sought Thursday to limit the benefits that U.S. companies can claim when they pay taxes overseas, an effort to cushion the blow from Europe’s demand that Apple pony up $14.5 billion in unpaid taxes.
In new guidance, the department tightened regulations requiring American businesses to bring foreign profits back home — a process known as repatriation — if they want to get credit for taxes paid in that country. Treasury issued the rule last year to prevent companies from enjoying a foreign tax credit when the related profits remained offshore. But businesses circumvented it by shifting money within their foreign subsidiaries, and Thursday’s guidance aimed to end that practice.
The department said it hoped the new notice would reduce corporate America’s incentive to “take advantage of our broken international tax system.” Washington is worried that mounting international tax obligations will eat away at what’s left for Uncle Sam.
“Today, we are closing another tax loophole that contributes to the erosion of our tax base,” said Mark J. Mazur, assistant secretary for tax policy at Treasury.
The move is the latest effort by President Obama’s administration to pin down the more than $2 trillion in profits that U.S. companies hold overseas. Unlike most developed countries, the United States taxes businesses on profits generated anywhere in the world — and the bill comes due once the money returns to American shores. That has encouraged many companies to keep their international profits overseas to avoid the hefty 35 percent tax rate at home.
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