Delivering Alpha

Wrong for overseas authorities to 'reach into our tax base': Treasury's Jack Lew

Europe's action out of normal tax framework: Jack Lew
Europe's action out of normal tax framework: Jack Lew

Treasury Secretary Jack Lew told CNBC on Tuesday the U.S. needs to take action, including an overhaul of the "broken corporate tax code," to fix what's driving companies to seek shelter in overseas tax havens.

But during an interview at CNBC/Institutional Investor's Delivering Alpha conference, he acknowledged that the corporate tax overhaul "probably" won't happen during the remaining months of the Obama administration.

The European Commission ruling that Apple owes Ireland $14.6 billion in back taxes is inappropriate, said Lew, who stressed he has conveyed that message to European regulators.

"What I don't think is right is for tax authorities in other jurisdictions to reach into our tax base," he said.

In an editorial in The Wall Street Journal on Tuesday, Lew criticized European Commission plans to "impose retroactive penalties" on U.S. corporations operating in Europe.

The commission's "actions also threaten to erode America's corporate tax base," he wrote. "U.S. companies could claim foreign tax credits against their U.S. tax bill for any tax-related payments to European Union member states."

In trying to reform U.S. corporate taxes to keep American companies from looking overseas, Lew told CNBC: "The principle that's driven our work on tax reform is that it has to be revenue neutral."

Jack Lew: Tax reform must be revenue neutral
Jack Lew: Tax reform must be revenue neutral

The Obama administration is proposing to eliminate tax loopholes and deductions, and using the revenue generated to reduce the tax rate on the business side "as much as we can," he said.

The Treasury proposal looks to reduce the federal rate to 28 percent. According to consultancy KPMG, the current federal rate is 35 percent, plus another 5 percent as the effective rate for local and state taxes.

Lew said discussions with Republican lawmakers including House Speaker Paul Ryan indicate there's a "basis for an agreement" on cutting corporate taxes. "I just think that time for the agreement is probably not in the next four months," he added.

Even a 28 percent U.S. corporate tax rate would be more than double Ireland's 12.5 percent rate. However, Lew defended the administration's number, saying: "In the 25 to 28 percent range, we're getting pretty close to the average."

If international regulators want to stamp out tax avoidance, Lew said countries with "very low" rates in hopes of attracting foreign companies are "part of the problem."

"We have our problem. We have a high rate and a broken system. We need to fix our system," he added. "Some of them need to take a look at theirs as well."