By Kim Dixon
WASHINGTON (Reuters) - The chief of a group of more than 200 CEOs said on Thursday that President Barack Obama had told the business community last month he might back a territorial tax system, a regime that would exempt offshore corporate profits from U.S. taxation.
Corporate America is pushing for the United States to move to such a regime to make businesses more competitive against foreign rivals that pay no taxes on overseas earnings. The United States currently taxes corporate profits earned abroad only when they are brought into the country.
In 2011, then Treasury Secretary Timothy Geithner privately agreed to move to such a regime in failed talks with Republicans to secure a major budget deal, according to aides present.
During last year's presidential election campaign, Vice President Joe Biden criticized a territorial tax system, employing populist rhetoric to blast companies that shift their business and jobs abroad.
John Engler, president of the Business Roundtable, a CEO lobbying group, said that in meetings during last month's budget standoff between the White House and Congress, Obama was moving back in the business community's direction on the issue.
"He reaffirmed his support for corporate tax reform and he was acknowledging the importance of ... a territorial system, which I think had been a little bit of a question," Engler said.
A White House official on Thursday said Obama is eager to "pursue corporate tax reform that lowers the rate ... but does not believe that a pure territorial system is the best way to achieve this goal."
A territorial system is seen as having a chance of winning approval in Congress only if it were to be coupled with a major budget deal, where Obama could win some of his priorities.
The Business Roundtable is composed of chief executives from marquee companies ranging from mega-retailer Wal-Mart Stores Inc to Wall Street's JPMorgan Chase & Co.
TAX REVAMP UNCERTAIN
Lawmakers in Congress have been working on a tax code overhaul for more than a year, though its prospects are unclear given a crowded legislative agenda and disputes over revenue.
Obama last year pitched a corporate tax revamp that included cutting the top corporate tax rate to 28 percent from 35 percent and closing a number of business tax breaks to pay for the cut.
Pam Olson, assistant treasury for tax policy under Republican President George W. Bush and now chief of PricewaterhouseCooper's Washington tax practice, said Obama's plan carefully opposed a "pure" territorial tax system, but left the door open for hybrid systems that might, for instance, exempt some but not all offshore profits from U.S. taxation.
"The use of the term 'pure' I think, was a signal that they were willing to consider it," Olson said.
Critics of moving to a territorial system say it will cause further U.S. jobs and business to move offshore.
A report by the Congressional Research Service, a nonpartisan think tank for lawmakers, this month said U.S.-based global companies are increasingly shifting profits into tax havens like Bermuda and Switzerland.
Critics say this proves companies are aggressively skirting the law to avoid U.S. tax. Business groups say the trend is the result of the relatively high U.S. tax rate.
The notion of trimming the top corporate tax rate is a rare area of agreement between Democrats and Republicans on tax policy, though Republicans want to lower the rate more.
A major hurdle in any tax code revamp would be how to "broaden the base" of taxpayers, which both sides say is needed to help fund a tax rate cut. That would mean making hard choices about scrapping tax deductions, credit and loopholes that some companies hold dear.
Engler said his CEOs would be willing to give up some perks if it meant the corporate tax rate could be cut to 25 percent.
"There are credits for the way you handle depreciation, there are credits on R&D (research and development), there are credits on this type of manufacturing or this type of manufacturing product," he said. "They have to be on the table."
(Editing by Kevin Drawbaugh, Howard Golle, M.D. Golan and Andrew Hay)