Feds Target Offshore Losses

With concern growing in Washington, D.C., over business practices used solely to reduce tax liability, the Clinton Administration is tackling provisions in the tax law that allow corporations to use the losses of offshore companies to reduce their taxes stateside.

Under existing law, a U.S. company can take an ownership stake in a foreign company bleeding red ink and use the foreign company's losses to reduce its domestic taxes. The new federal budget in early February includes a proposal to gut this practice by requiring that the company's foreign assets be "marked to market" when the losses are transferred, a requirement that would bleach the tax benefits from the practice. The proposal would not be retroactive. Some observers believe the offshore loss issue has less to do with corporate abuse of the tax laws than with the current political atmosphere in Washington. "This is a source of revenue that is easy to pursue because it's not politically sensitive," contends David Cooper, editor of Practical international Tax Strategies, a newsletter published by World Trade Executive, in Concord, Mass.

"These corporations aren't doing anything illegal," Cooper added. "They're just interpreting the tax law in an aggressive way.

The attack on offshore losses is part of a larger assault on corporate tax shelters from the Clinton Administration, and includes a proposal to tax companies on punitive damage payments. This plan is among 16 changes to tax laws designed to raise S7.2 billion. "The Treasury Department has been talking at public forums for several months now about tax-shelter registration, which, in effect, may stop much of this corporate tax-shelter activity," observes Mark Regante, a tax attorney with Milbank. Tweed, Hadley & McCloy, in New York.

COPYRIGHT 1999 CFO Publishing Corp.
COPYRIGHT 2000 Gale Group