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MARY DALRYMPLE
Associated Press

WASHINGTON - American companies that leased foreign dams, bridges and subways stand to lose billions of dollars in tax deductions beginning next year under a proposal advanced by Senate tax writers.

The change, folded into a corporate tax cut pending in the Senate, limits the tax deductions companies can immediately claim when they lease foreign public works and claim a tax deduction for the infrastructure's depreciated value.

Congressional tax experts haven't finished calculating the proposal's impact on corporate taxes, but the restrictions are expected to raise enough money to cover the cost of $14 billion in new tax breaks for energy production and conservation.

The House and Senate have advanced bills effectively blocking future leases, but critics said the Senate Finance Committee's new proposal goes further by penalizing companies that entered legal leases years ago, long before debate erupted on Capitol Hill.

"That on its face is an extreme, extreme tax policy statement," said Michael Fleming, president of the Equipment Leasing Association. "Where does it end?"

One lobbyist, speaking on condition of anonymity, said the idea threatens taxpayer and investor confidence that Congress won't change tax laws retroactively.

A Senate Finance Committee aide said the change doesn't erase corporate tax deductions but delays them.

The committee started investigating the lease transactions after an anonymous witness testified to their widespread use last fall.

"This scheme is so pervasive that much of the old and new infrastructure throughout Europe has been leased to, and leased back from, American corporations," said the witness. "The sole purpose of this scheme is to generate a tax shelter for U.S. corporations that invest in these schemes."

In the typical lease under scrutiny, a local government leases public infrastructure, such as a bridge built or bought with public funds, to a private company to raise revenue. The private company claims a tax break for the depreciated value of the infrastructure while the local government retains control of it.

Critics say taxpayers lose more through the companies' tax deductions than they gain in benefits to their cities and towns.

U.S. companies hunting for new tax deductions have leased as much as $750 billion worth of bridges, subways and other public works in the United States and abroad over the past four years, according to the Treasury Department.

The lease crackdown is part of a bill that cuts taxes for American manufacturers and resolves a trade dispute with the European Union.

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