President Barack Obama's proposal to tighten tax loopholes on offshore bank accounts may affect region companies and individuals who use the tax havens in such places as the Cayman Islands and Switzerland, according to one local economist.
What impact this tax policy will have on the Northwest Indiana business climate remains to be seen, said Jaishankar Raman, Ph.D., associate professor of economics at Valparaiso University.
"This is something we've seen coming down the pipeline. It was part of Obama's campaign," said Raman, who teaches international economics courses at VU.
The Times on Monday contacted area companies that are part of multinational corporations including BP, Lever Bros., ArcelorMittal and Cargill.
Only Cargill responded to inquiries with a statement.
"President Obama said he was going to take a hard look at taxation of multinational companies," said Bill Brady, Cargill spokesman headquartered in Minnesota.
"This proposal was just released this morning, and we are carefully evaluating it. We'll need to learn more details to fully understand the proposal as well as the impact on our business."
Obama's two-piece plan announced Monday would eliminate some tax deductions for companies that earn profits in countries with low tax rates, and consider U.S. citizens who use tax havens guilty of violating U.S. tax laws. If financial institutions cooperate with Washington and disclose details when asked, Americans could invest anywhere they like.
However, the proposal would implement a major shift in the way courts view guilt. Under Obama's proposal, Americans would have to prove they're not guilty of breaking U.S. tax laws by spending money to banks that don't cooperate with tax officials. This essentially reverses the long-held assumption of innocence in U.S. courts.
According to Raman, many Fortune 500 companies are getting tax breaks by moving money to offshore accounts. "They will try to fight it. They will see it as a tax increase," he said.
To date, many banks in other nations have cooperated in providing client information for security issues. "Even the Swiss banks have been cooperative in security matters. But the banks in these tax haven nations might balk at giving out information for tax purposes," Raman said.
Howard England, a retired bank compliance officer with Barings Bank & Guarantee in the English Channel Island of Guernsey, said corporations and citizens from around the world use banks in areas such as the Channel Islands, the Cayman Islands, Bermuda and Switzerland to hide money from their governments' taxing agencies.
England, who is visiting friends in the region, said these countries set their own tax rates, which are typically much lower than other nations, and the banks hide behind their countries' laws to shelter money for their clients.
"I worked every day with corporations and individuals from around the world to set up offshore accounts. These are nice places to put money. Whatever interest these accounts earn is never declared in the country of origin. If you don't declare it, you're avoiding taxes. This really is the issue," said England, whose job as a compliance officer was to make sure the bank followed its own policies.
To date, 13 nations have signed agreements to exchange information on bank accounts held in their countries, England said. However, he said, privacy is the core issue.
"You wouldn't want your bank telling someone about your bank accounts," he said.
Raman said the president faces challenges on Capitol Hill, especially if passing these changes means the loss of jobs in the United States.
If the plan wins congressional approval, it won't go into effect until 2011. Obama has said he doesn't want to tinker with tax revenues until his $787 billion stimulus plan has run its course. It could deliver $210 billion on tax revenue over the next decade.
This amount of money isn't significant when compared with the current economic deficient, Raman said, but it will signal that "there is a rule of law we would like to follow."
The Associated Press contributed to this report.
