Corporate tax experts say that President Obama's foreign tax proposal made in May 2009 would raise taxes on every multinational company. The proposed rules would put restrictions on the practice of deferring tax payments related to overseas profits, close the foreign tax credit loophole, and eliminate the check-the-box rule that allows companies to shift income between subsidiaries on a tax-free basis.

Companies are allowed to defer paying taxes on profits from foreign subsidiaries until they repatriate the profits back to the United States. But Obama would force companies to give up the deferral and repatriate profits before claiming any deductions from the subsidiary. Companies can now borrow money from a subsidiary and deduct the interest on the tax return. The new rule would not allow the interest expense deduction until the profits are repatriated.

The foreign tax loophole that the Obama administration is looking to close is one in which the current tax law allows companies to take a credit for taxes paid to a foreign government. The Obama administration believes that these credits for foreign taxes have been artificially inflated and is looking to clamp down in this area.

The check-the-box rule allows companies to disregard the subsidiaries for tax purposes. Subsidiaries can shift income among subsidiaries without reporting any passive income or paying US taxes. The Obama administration wants to end this practice.

The primary reason that US companies delay repatriating profits is that the average combined federal and state corporate tax rate in the US is 39.3% which is the second highest among the 30 largest countries. Only Japan's combined rate of 39.5% is higher.

Kevin Surace, CEO of Serious Materials of Sunnyvale, who was part of a group of 50 leaders from Silicon Valley visiting Washington DC, told the San Francisco Chronicle, "The plan would make very good companies very uncompetitive. As it is, he said, with the cost advantages that Chinese companies have already, we're almost uncompetitive now."

Obama's proposals are slated to take effect in 2011.

John Laub is the President of the CEO-CFO Group.

1. "Watch Out for the Expense-Deferral Rule. Corporate Tax Experts Say The Centerpiece of Obama's Foreign Tax Reform Proposal is the Expense-Deferral Rule - and It Will Affect Every Multinational Company." Marie Leone. CFO.com. May 5, 2009.

2. "Silicon Valley Execs Oppose Obama's Tax Plan." Carolyn Lochhead. San Francisco Chronicle Washington Bureau. May 7, 2009.

3. "U.S. States Lead the World in High Corporate Taxes." Scott A. Hodge. The Tax Foundation. March 18, 2008.