[url=http://www.harperindex.ca/ViewArticle.cfm?Ref=00228]Corporate tax cuts to go to US Treasury as Obama closes loophole[/url]
US will tax its companies the difference between foreign taxes and domestic ones to slow outsourcing
TORONTO, June 22, 2009, HarperIndex.ca, with YouTube video: An international union is warning that future corporate tax cuts in Canada will amount to "federal treasury transfers" to the US Treasury.
Erin Weir, chief economist with USW-Canada (United Steelworkers) says the Obama administration is closing a loophole that used to let American companies pocket big savings by operating overseas. At the same time, the loophole resulted in competition between countries such as Canada to drop tax rates more than other countries to attract these companies.
Under existing rules the Obama administration will now enforce, any difference between what US companies pay in taxes abroad and what they would have paid at home gets taxed back by the USA. As a result, a great percentage of the massive corporate tax cuts, like the ones Stephen Harper introduced in his 2008 budget, flow directly into the US Treasury, since many of the most profitable companies in Canada are US-owned branch plants.
The USA taxes corporations on a worldwide basis, explains, Weir, which means that, when an American company brings profits from Canada to the USA, it pays the 35 percent American tax rate on those profits minus the credit for whatever taxes it has already paid in Canada. "As long as Canada's corporate taxes at both the provincial and federal levels add up to at least 35 percent, that provides enough credits to meet all of the US tax obligations. If, however, Canada cuts its corporate tax rates below that 35 percent threshold, we run the risk of redirecting tax payments from Canadian governments to Washington." . .
With federal Liberals committed to even deeper corporate tax cuts than the Conservatives, Weir advises caution. "The obvious policy implication here is that Canada should try to maintain a combined federal provincial corporate income tax rate of at least 35 percent to make sure we keep the revenues in our country."
And the so-called opposition party in Ottawa has provided 79 confidence votes for the Harper agenda so far.