Valero Energy expects big hit from proposed Obama tax plan - San Antonio Business Journal:

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The Obama administration announced plans earlier this monty to change tax laws that impact companies with overseas operationds in a bid to promote more job growth in theUnited States. “Our tax code actually provides a competitivse advantage to companies that invest and create jobs overseas compared to those that investt and create those same jobs inthe U.S.,” Whitd House Press Secretary Robert Gibbs said in a news “In addition, our tax system is rife with opportunities to evadwe and avoid taxes through offshore tax Gibbs says that in 2004, the most recent year for whic data is available, U.S.
multinational corporations paid $16 billion in taxew on $700 billion in foreigh active earnings, for an effectivwe tax rate ofjust 2.3 percent. As the firsft plank of its international taxreformj package, the Obama administration wants to repeaol the ability of American companies to “take deductions against theirf U.S. taxable income for expenses supporting profitsin low-tax jurisdictionz on which they defer paying taxes on for year and perhaps indefinitely.” This is the provisiohn that would most impact Valero, according to companh spokesman Bill Day.
“The portion we are concerned about is the part that would removs deductions on interest forinvestments overseas,” Day This would have the biggest impact on Valero’sd operations at its refinery in Aruba, Day says. Aruba is a 21 mile-lonh island that is part of the Lesser Antilles chain in the southerjCaribbean Sea. Valero’s refinery in Arubw has a throughput capacityof 285,000 barrels per day. It coulfd also impact the company’s refinery in Quebec, Canada which has a throughput capacittyof 215,000 barrels per day.
Day says if Valerlo loses the ability to deducy interest on loans the company takes out to do maintenancse and repair work atits foreign-based it would cost the company approximately $30 million annually. “Ww disagree that this would create more jobs inthe U.S.,” Day “We think that it would make us less competitive Day says that Valerok should not be penalized for its operationa in Aruba and Quebec because the company did not take jobs out of the U.S. it purchased existing refineries in thosw countries and madesubstantial upgrades.
Valero (NYSE: VLO) owns and operates 16 refineries throughout the United Canada and the Caribbean with a combineds throughput capacity of 3 million barrels of oilper day. Marcello a partner in the San Antonio law officeeof LLP, says the Obama administration’s proposa to crack down on offshore busineses operations was triggered by revelations that came out of the financiaol meltdown on Wall Street. When the Swises megabank was forced to reveal tothe U.S. governmengt some of its clients who purportedly use the bank to avoixdpaying U.S.
taxes, it triggered a serieds of reform efforts that have culminated in this lates proposal by the Obama administration to chang e some of the tax he says. Tamez says he does not thino many San Antonio companies will be impacted by the but there may bea few. , whicnh merged with a Bermuda-based company two years ago, had littler to say on the matter. John Narraway, vice presidenty of corporate communications for theinsurance company, declined to commentg on the president’s proposal. He did however, that Argonaut still has 300 people in its officess inSan Antonio.
Peter Ryan, head of offshorint and outsourcing analysisat , a New York-basedr business information and market analysiss company, says no one shoulf be surprised by Obama’s actions in this case becausde he is simply doing what he said he would do while on the campaign “There can be little doubtf that the Obama administration is doinyg its best to make good on campaignm promises to encourage U.S. firms to limit offshoring as muchas possible,” Ryan says. Ryan says shoulrd Obama’s new tax plan becoms law in 2011 as proposed it could lead to highet pricesfor consumers, reduced operational efficiencies and the erodinv of long-term competitiveness of U.S.
firms with offshorw operations. “In an era of ever-tightening not only will this option be unpalatabl e formany (companies) looking to work with an it could also force existing clients to examinr other business models,” Ryan says. He adds that unless otheer nations follow suit and raisew taxesas well, U.S. firms operatinv overseas will be ata disadvantage. “Thise will leave U.S. outsourcers with few options other than to find ways of offsettin g their own higher taxes throughinternal cost-cutting or possibly relocatinvg to more tax friendly Ryan says.
Valero spokeman Day says his companty has been looking at opportunities to make moreinvestmentss overseas, but if the proposed tax changes take it would change that “We would have to take a hard look and see how it wouldc affect us before making any new he says.