Offshore Tax Planning

Whilst the White House has already committed itself to an overhaul of the US tax code some time in the next four years, the President’s budget document stated that the administration will “continue to propose important policy initiatives” until the Advisory Panel on Federal Tax Reform reaches its conclusions.

Among the more crucial tax cutting measures proposed in the 2006 budget are the making permanent of income tax cuts at a cost of some $502 billion through 2015, a permanent repeal of estate tax at a cost of $256 billion over the next ten years, and the permanent extension of the cut in tax on corporate dividends to 15%, costing $102.9 billion over the same period.

Additional measures to benefit businesses, including renewal of corporate tax credits such as the R&D credit, are also provided for in the budget document. These would cost around $76.2 billion through 2015.

There are also tax incentives in the budget to encourage saving, with the creation of two new tax-deferred savings accounts known as Retirement Savings Accounts and Lifetime Savings Accounts, which will allow tax-free growth and withdrawals.

Changes to the tax treatment of a type of corporate pension transaction, known as a cash balance pension conversion, which allows firms to switch their traditional defined benefit plan to a cash balance plan, have also been proposed. This measure would raise $1.1 billion in revenues through 2015.

Other revenue raisers will include measures to improve tax compliance, including a plan to limit related party interest deductions (raising $1.6 billion through 2015), and the closure of new investment plans that enlist charities to turn life-insurance policies into vehicles for professional investors, saving a further $323 million.