President plans to target the foreign earnings and hoarded offshore profits of US multinationals by proposing new taxes that would have major implications for American companies in Ireland.
Under plans revealed on Saturday night, Mr Obama wants to introduce a minimum tax of 19 per cent on future overseas earnings of American companies and a mandatory 14 per cent tax on profits accumulated by the firms outside the US in low-tax countries such as Ireland.
The affected companies would include US multinationals such as Google and Apple which have large operations in Ireland and use the country as a key artery for their global profits and financial operations.
The proposals are part of a $3.99 trillion (€3.5 trillion) budget plan to be presented tomorrow aimed at meeting the president’s pledge to help America’s lower and middle classes by raising taxes on the rich.
The Obama administration estimates the new offshore corporate taxes could raise $565 billion over 10 years, according to Bloomberg news agency which first reported the proposals.
The once-off tax on retained profits held overseas would yield $238 billion, Bloomberg said.
The president wants to tax the international profits of American companies that regularly remain beyond the reach of the US Treasury.
He is targeting a further $2 trillion in retained profits held offshore by US companies which don’t want to bring the cash home as they would have to pay the American corporate tax rate of 35 per cent.
Multinationals have been lobbying for a lower tax rate, in the mid-to-high single digits, for repatriated profits.
Under Mr Obama’s proposals, the tax on stockpiled overseas profits would be levied on US companies regardless of whether the money is returned to the US.
The proposed taxes would raise money which the administration wants to use to build roads, bridges and other infrastructure projects.
The US Congress must first pass legislation to put the plans into effect, but it has so far failed to agree on how to overhaul the business tax system. Mr Obama and Republicans, now in control of Congress, have disagreed on how low the US corporate tax rate should be set.
The president wants to reduce the headline corporate rate to 28 per cent and to introduce a preferential rate of 25 per cent for manufacturers. Republicans want a lower top corporate tax rate.
A proposal from a senior Republican in the House of Representatives last year suggested lower tax rates on repatriated profits: 8.75 per cent for cash and 3.5 per cent for other assets.
Republicans have been reluctant to agree to changes to corporate taxes alone outside of a broad revamp of the tax code.
Apple, the California computer, tablet and phone maker, has drawn fire from members of Congress for using Irish companies to pay a minimal amount of tax on billions of dollars of income held in Ireland.
Reacting to limit the reputational damage, the Irish Government last year said it would phase out the controversial Double Irish tax loophole that allowed US multinationals shield profits from taxes by routing them through Ireland to an offshore tax haven and back again.
Mr Obama joined fellow Democrats last year to berate US firms for using international loopholes to avoid taxes, labelling them “corporate deserters” and calling for a “new sense of economic patriotism.”
The president singled out Ireland, denouncing companies that “magically” become Irish by moving their legal addresses overseas in tax-reducing takeovers but maintain their core operations in the US.
Democrats have recently renewed a push for legislation to curb the practice known as "corporate inversions" where a US firm changes its legal address by merging with another, often smaller company in Ireland, the Netherlands or elsewhere to avail of lower tax rates.
