Tax Crackdown Could Hurt Offshore Adult Companies

Rhett Pardon
WASHINGTON — In a plan that could adversely affect adult companies that operate offshore, the Obama administration wants to get tough on legal tax dodgers.

On Monday, the president outlined a proposal that, among others, would:

  • Close a loophole that allows companies to avoid taxes by reporting to the U.S. government that they're paying taxes in foreign countries and then telling the foreign countries that they're paying here.

  • Eliminate some tax deductions for companies that earn profits in countries with low tax rates.

The White House proposal would place new withholding and reporting requirements on U.S. banks that facilitate transfers to offshore accounts.

The plan would affect banks that don’t share information on U.S. customers with the Treasury Department, under an arrangement known as the "qualified intermediary," or QI, program. It would change legal presumptions that the White House say now work in favor of U.S. companies and individuals hiding assets offshore.

"Under this proposal, the assumption will be that these institutions are facilitating tax evasion, and the burden of proof will be shifted to the institutions and their account-holders to prove they are not sheltering income from U.S. taxation," according to a synopsis from the White House.

According to the White House, U.S.-based multinational corporations paid only $16 billion in taxes to the U.S. on $700 billion in foreign earnings — an effective tax rate of 2.3 percent — in 2004, the most recent year for which data are available.

The Obama administration estimates that an overhaul could help raise $210 billion in revenue over 10 years.

While most Americans pay their fair share of taxes, Obama said, “there are others who are shirking theirs, and many are aided and abetted by a broken tax system.”

Obama’s proposal comes about a month after the Organization for Economic Cooperation and Development said that Costa Rica, the Philippines, Malaysia and Uruguay were off a black list of countries that have not committed to the internationally agreed tax standards.

The four countries pledged to commit to an exchange of information with the group, according to the OECD.

Monday’s proposal that targets offshore companies is part of a much larger plan to overhaul the nation’s tax system, which will be detailed later this week when the White House presents its formal budget.

Many of the tax proposals will require Congressional approval and, if passed, none would take force before 2011.