US firms to get foreign profit tax break

The Bush administration outlined rules yesterday for a huge one-time tax break for companies that reinvest their overseas profits back in the United States.

According to a report on the website of New York Times, the tax break, which was part of last year's corporate tax bill, would allow companies to pay a fraction of the normal tax rate (5.25% as against the normal corporate tax rate of 35%) on around $500 billion of overseas profits.

However, in a setback for many of the biggest potential beneficiaries like Eli Lilly, Merck, Pfizer and H-P, the treasury department said companies could not use their windfalls for repurchases of stock or increases in dividends.

"The rules would help companies finance some activities that do little to directly increase employment, and a few - like corporate acquisitions - that might lead to job cuts," the report added.

The treasury department said the tax break could be used to finance advertising and marketing even if a company did not plan to increase its advertising.

The administration said companies could also use their foreign profits to pay for corporate acquisitions, redeem old debt and spend on the general purpose of financial stabilization, the report added.