Financial companies operating overseas will save nearly $95 million on their taxes this year, thanks to the Supreme Court's decision last week to strike down the line-item veto.
The court's June 25 ruling restores a tax provision Congress passed last summer that would let U.S. banks and other financial services companies defer taxes on income earned by foreign subsidiaries.
The provision will be in effect only for the 1998 tax year, though the industry is lobbying to make it permanent.
The measure was one of 82 items that President Clinton has removed from legislation.
Industry officials cheered the court's action. "This puts U.S. financial intermediaries on a level playing field with foreign competitors," said Hal A. Doersum, lobbyist for Household International. U.S. companies can reinvest more of their overseas profits and grow faster, he said.
"Most companies we compete with internationally do not face this tax," said Douglas P. Bates, lobbyist for the American Council of Life Insurance.
When President Clinton vetoed the provision last August, however, he complained that it would let companies shift income to the Cayman Islands and other tax havens in order to cut their tax bills.
Financial companies were allowed to defer taxes on income earned by offshore units until 1986 when concerns over abuses prompted Congress to revoke the break. Lawmakers reversed that decision in 1997.
"We're pleased that this action reinstates the law and gives us and other U.S. financial institutions equivalent tax treatment to U.S. industrials and foreign competitors," said Citicorp spokesman John M. Morris.