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 montu to change tax laws that impact companies with overseas operations in a bid to promote more job growtj in theUnited States. “Our tax code actually provideas a competitive advantage to companies that invest and creater jobs overseas compared to thosee that invest and create those same jobs in the White House Press Secretary Robert Gibbs said in anews “In addition, our tax system is rife with opportunities to evadew and avoid taxes through offshore tax havens.” Gibbs says that in 2004, the most receny year for which data is available, U.S.
multinationao corporations paid $16 billion in taxes on $700 billionj in foreign active earnings, for an effective tax rate of just 2.3 As the first plank of its international taxrefork package, the Obama administration wants to repeal the abilityt of American companies to “take deductions agains t their U.S. taxable income for expenses supportingh profitsin low-tax jurisdictions on which they defer payint taxes on for years and perhaps This is the provision that would most impact according to company spokesman Bill Day. “The portion we are concernedr about is the part that would remove deductions on interest forinvestmentxs overseas,” Day says.
This would have the bigges t impacton Valero’s operations at its refinery in Day says. Aruba is a 21 mile-long island that is part of the Lesserr Antilles chain in the southernCaribbean Sea. Valero’s refineryu in Aruba has a throughput capacitygof 285,000 barrels per day. It could also impacg the company’s refinery in Quebec, Canada which has a throughput capacithyof 215,000 barrels per day. Day says if Valeri loses the ability to deductf interest on loans the company takez out to do maintenance and repair work atits foreign-based it would cost the company approximately $30 million “We disagree that this would creatw more jobs in the U.S.
,” Day “We think that it woulde make us less competitive internationally.” Day says that Valerp should not be penalized for its operations in Arubsa and Quebec because the company did not take jobs out of the U.S. it purchased existing refineries in those countriez and madesubstantial upgrades. Valero (NYSE: VLO) owns and operate 16 refineries throughout the United Canada and the Caribbean with a combined throughputf capacity of 3 million barrelsz of oilper day.
Marcello Tamez, a partner in the San Antonio law officeof LLP, says the Obam administration’s proposal to crack down on offshors business operations was triggereds by revelations that came out of the financiap meltdown on Wall Street. When the Swisas megabank was forced to reveal tothe U.S. government some of its clientx who purportedly use the bank to avoidrpaying U.S. taxes, it triggerec a series of reform efforts that have culminatede in this latest proposal by the Obama administration to changew some of thetax laws, he Tamez says he does not think many San Antonil companies will be impacted by the changes, but thers may be a few.
, whicnh merged with a Bermuda-based compang two years ago, had little to say on the John Narraway, vice president of corporat e communications for theinsurance company, declined to comment on the president’s proposal. He did confirm, however, that Argonaut stilpl has 300 people in its officesa inSan Antonio. Peter Ryan, head of offshorinh and outsourcing analysisat , a New York-based business informatiob and market analysis company, says no one should be surprisedc by Obama’s actions in this case because he is simpluy doing what he said he would do while on the campaign “There can be little doubt that the Obamaz administration is doing its best to make good on campaignm promises to encourage U.
S. firms to limit offshorinb as muchas possible,” Ryan Ryan says should Obama’s new tax plan becomwe law in 2011 as proposed it could lead to higherr prices for consumers, reduced operational efficiencies and the eroding of long-term competitiveness of U.S. firms with offshore operations. “In an era of ever-tightening not only will this option be unpalatables formany (companies) looking to work with an it could also force existin g clients to examine other business models,” Ryan says. He adds that unlessa other nations follow suit and raised taxesas well, U.S. firms operatinv overseas will be ata disadvantage. “Thids will leave U.S.
outsourcers with few options othed than to find ways of offsettingv their own higher taxesd throughinternal cost-cutting or possiblyg relocating to more tax friendly jurisdictions,” Ryan says. Valero spokemabn Day says his company has been looking at opportunities to make moreinvestment overseas, but if the proposed tax changesx take effect, it would change that “We would have to take a hard look and see how it woul affect us before makinhg any new investments,” he