Barack Obama
Obama's 2016 budget includes plans to stamp out culture of stashing profits abroadReuters

Multinational US companies such as Apple, Microsoft and General Electric may be forced to cough up billions of dollars, as President Barack Obama moves to close a loophole on profits held overseas.

Forming a main component of his 2016 budget, presented this week, Obama's proposal is for companies to stump up a one-off payment of 14% on profits held overseas, followed by a 19% tax on any future overseas profits as they are earned.

Profits held abroad currently have zero US tax applied to them. Companies put their earnings into low tax jurisdictions, such as Ireland, where the corporate tax rate is 12.5% compared to 35% in the US, and leave them there.

An estimated $238 billion (£158bn) would be raised from the initial 14% bill, and this money is earmarked for funding US road projects.

Companies most affected by the proposed tax include Apple, Microsoft and IBM, who between them added $37.5bn to the growing pile of US cash held overseas, which now stands at over $2 trillion.

In the last three years, Apple's profits held offshore have more than quadrupled, while Microsoft and Google have both seen theirs double.

Gimmicks

"The loopholes in our tax code right now give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore," Dan Smith, a tax and budget advocate at the US Public Interest Research group, told Bloomberg.

The top 15 US companies hold $795bn outside of the country, up 10.6% from last year. General Electric leads the way, holding $110bn overseas, followed by Microsoft, Pfizer, Merck, and Apple.

For it to become law, Obama's proposal would require approval from the Republican-controlled Congress.

A White House official said: "This transition tax would mean that companies have to pay US tax right now on the $2tn they already have overseas, rather than being able to delay paying any US tax indefinitely."

Following the one-off payment, companies would have to pump 19% of profits earned abroad back into the US, which would "level the playing field and encourage firms to create jobs here at home," the White House added.

Although a substantial sum, the proposed 19% rate is still far lower than the current top level for corporation tax on profits earned in the US, which stands at 35%.