Pat Dollard | Young Americans

Christine Seib in New York

President Obama has launched a crackdown on tax loopholes used by multinational corporations as part of a plan to save up to $210 billion over the next decade. It is a move that could cause further significant redundancies in the UK.

The drive against corporate tax avoidance is also intended to clamp down on tax incentives that favour investment outside the United States.

Fears were mounting last night that the move to boost employment in the US could be at the expense of the UK, where thousands of City jobs have been lost because American financial institutions have reduced their overseas workforces.

America’s biggest companies paid taxes to the US Government at a rate of only 2.3 per cent on their foreign earnings. “Our tax system is rife with opportunities to evade and avoid taxes through offshore tax havens,” a White House spokesman said.

The campaign to rein in the tax avoidance practices of multinationals has already provoked a reaction from the boardroom. Some of America’s biggest companies have already launched a fight against the President’s reforms.

Microsoft, Johnson & Johnson, General Electric, Pfizer and Oracle were among 200 companies and trade groups that protested against the planned changes last month in a letter to Congress. The reforms are expected to hit 100 largest US companies, many of which rely heavily on growth in overseas earnings.

Mr Obama said yesterday that he would close provisions in US tax law that allowed companies to defer the payment of tax on profits made at their overseas operations as long as the profits were ploughed back into the foreign business. He said that this encouraged companies to expand their operations outside America at the expense of US jobs. Changing this rule from 2011 will save about $60 billion by 2019, according to White House calculations.

The President also said that companies would not be able to deduct the expense of supporting their overseas operations from their tax bills until they paid tax on these profits. Companies will also be prevented from shifting foreign profits to tax havens, saving a further $86.5 billion. Of America’s 100 largest companies, 83 have subsidiaries in offshore locations.

The President must have the tax changes approved by Congress. Max Baucus, chairman of the Senate Finance Committee, said that he wanted to ensure that the policies did not disadvantage the global competitiveness of America’s multinationals.

It was unclear how quickly the proposals would be considered by lawmakers.

In a note to investors, Goldman Sachs said that the speed with which the plans were passed would depend on how much pressure there was on Congress to spend in other areas, pushing it to use the increased tax take to offset its expenditure.