Obama plans to close overseas tax loop holes

With such loopholes, companies investing overseas gain an unfair advantage over companies that invest in the U.S., mainly by deferring taxes on profits earned overseas.

President Barack Obama said the proposals were designed to meet a promise he made during the presidential campaign.

According to Obama, some companies are shrinking tax obligations.

The plan aims to narrow a provision that allowed U.S. companies to defer paying U.S. taxes on the profits they make on their overseas investments and also to eliminate a loophole that allows companies to make foreign subsidiaries disappear for tax purposes.

Obama said the loophole "let subsidiaries of some of our largest companies tell the IRS that they are paying taxes abroad, tell foreign governments that they are paying taxes elsewhere, and avoid paying taxes anywhere."

The companies argue that Obama's plan will leave U.S.-based companies vulnerable overseas because foreign rivals won't have to pay the 35% U.S. corporate tax rate—instead paying the tax rates, in effect, overseas, where they are generally considerably lower.