The current rules allow companies to organize their offshore operations efficiently, Kies said, so they can manage subsidiaries in multiple countries and still benefit from the deferral of taxes on their overseas earnings that is allowed under U.S. law.

Obama described it differently: “It’s a loophole that lets subsidiaries of some of our largest companies tell the IRS that they’re paying taxes abroad, tell foreign governments that they’re paying taxes elsewhere — and avoid paying taxes anywhere.”

This use of the “check-the-box” rule is fairly common, as indicated by how many corporations use subsidiaries in low-tax countries such as Ireland to structure their overseas operations, said Rosanne Altshuler, co-director of the Brookings/Urban Institute Tax Policy Center.

“By doing this, it allows the U.S. government to collect tax on payments between affiliates that should have been taxable but that are not being taxed because of check-the-box,” she said.

Deferral Targeted

In a widely expected and more controversial move, the administration is proposing to curtail deferral, the feature of the U.S. tax system that allows multinational corporations to delay paying taxes on income earned overseas until they bring profits home.

Unlike most industrialized nations, the United States attempts to tax the income that companies with domestic headquarters earn worldwide. Deferral, corporations say, allows them to compete in foreign markets without facing an extra layer of tax, and they warn that U.S. companies would face a major competitive disadvantage without it. Critics, including Sen. Byron L. Dorgan , D-N.D., contend that the allowance gives companies an incentive to move operations overseas.

Business groups, prepared for the attack, pointed to the need to serve overseas markets. They also cited the research and headquarters jobs that those foreign operations support here.

“It’s an integrated system that we have,” said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers. “U.S. jobs support jobs overseas, and to the extent that you impose a significant amount of new taxes on multinationals, they’re not going to be able to hire as many people.”

Obama’s deferral proposal mirrors a bill offered in 2007 by House Ways and Means Chairman Charles B. Rangel , D-N.Y. Companies would not be allowed to claim deductions for domestic expenses related to foreign earnings until they bring those profits home. Some companies with high interest expenses say the Rangel bill would be worse than repeal of deferral.

Rangel welcomed Monday’s proposal and said he looked forward to working with the administration.

Unlike Rangel, Obama does not propose lowering the 35 percent corporate tax rate, rejecting a trade-off that some companies were willing to make.

Still, Gibbs said using revenue from closing “loopholes” to reduce the corporate rate is “exactly what [Obama] has in mind.” He described the plan as a first step toward a broader overhaul of the tax code.

Obama did provide a few sweeteners that may blunt criticism. He wants a $74.5 billion permanent extension of the research and development tax credit, and he would exempt research expenses from the new deferral limits, bowing to businesses’ point that overseas operations support some U.S.-based jobs. Those are significant concessions to high-tech companies, manufacturers and pharmaceutical firms, which benefit from deferral but are clamoring for a permanent research credit.

“That was some good news, but that was far outweighed by the bad news,” Coleman said.

The Obama proposal also would change the foreign tax credit to prevent companies from artificially inflating or accelerating the credits. The administration would make the credit based on the total amount of foreign tax paid, instead of a system that bases it on the profits brought home.

In the $8.7 billion tax haven portion of the plan, Obama picks up pieces of bills circulating in Congress, including a draft proposal from Baucus and much more far-reaching bills from Sen. Carl Levin , D‑Mich., and Rep. Lloyd Doggett , D-Texas (S 506, HR 1265).

Obama’s proposal would strengthen reporting requirements by foreign banks, impose tougher penalties and extend the statute of limitations for certain investigations. He also wants to hire up to 800 more IRS employees to focus on international tax enforcement.

These provisions are the ones most clearly targeted at tax evasion. But whether the other items will be viewed the same way may determine the outcome of the fight.

“There’s a big difference between abusive tax avoidance and legitimate tax policy that recognizes the global economy,” Charles E. Grassley , R-Iowa, ranking member of the Senate Finance Committee, said in a statement.

“To the extent the President continues on the road of cracking down on tax abuse, he can count on my support. But if he’s using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he’ll lose me.”