SEATTLE (Bloomberg) — Microsoft Corp. chief executive officer Steven Ballmer said the world's largest software company would move some employees offshore if Congress enacts President Barack Obama's plans to impose higher taxes on US companies' foreign profits.

"It makes US jobs more expensive," Ballmer said in an interview. "We're better off taking lots of people and moving them out of the US as opposed to keeping them inside the US."

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the US Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

US tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the US.

Microsoft reported an overall effective tax rate of 26 percent for 2008 in its last annual report. "Our effective tax rates are less than the statutory tax rate due to foreign earnings taxed at lower rates," the report said.

Barry Bosworth, an economist in Washington at the Brookings Institution research centre, said many software companies such as Microsoft have exploited tax and trade rules in the US and other countries to achieve a low overall tax rate.

Typically, he said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against US income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn't have to claim the income in the United States.

"What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate," Bosworth said. "Relative to where they are now, the administration's proposals are less favourable, so there will be some rebalancing on their part." Ballmer is one of 10 US software company executives pushing back against the tax proposals in meetings yesterday with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

Among other things, Obama proposed limiting expense deductions such as those for employee compensation when companies defer US tax on foreign profits.

In a roundtable discussion yesterday, Ballmer, Symantec Corp. chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing US workers.

Ballmer said that, while the Obama proposals would preserve expense deductions related to research and experimentation costs, the overall deduction limits for companies that defer tax on foreign profits would raise the cost of employing US workers. Fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country.

Microsoft employed 95,029 people worldwide as of April 21, of whom 56,552 were based in the United States, according to the company's website. The company announced it was firing up to 5,000 people in January while hiring some new workers; the company has shed about 1,000 jobs since then, spokesman Lou Gellos said.

Ballmer estimated that higher taxes under the proposal would reduce profits for companies that comprise the Dow Jones Industrial Average by between 10 and 15 percentage points.

"It's just a question of how much will the Dow come down," Ballmer said. "It's not about companies anyway; we're talking about shareholders."

In addition to limiting current deductions for companies that defer US tax on their foreign profits, Obama proposed altering a set of rules known as 'check the box' that allow companies to shelter foreign profits in offshore subsidiaries that can be disregarded for US tax purposes.

While the rules were designed in 1997 to protect US companies from paying excessive tax to other governments, Obama administration officials say it has evolved into a way to duck US liabilities. Altering the rule, which Obama dubbed a "loophole", would generate $86.5 billion in new revenue by 2019, the administration says.

The third international tax proposal would change rules governing how companies can claim tax credits for levies paid to foreign governments. Officials say some companies abuse the rule to accelerate tax credits before they could otherwise be claimed.

Obama has said his proposals would protect or create jobs in the United States.

Thompson of Symantec, the Cupertino, California-based maker of Norton anti-virus software and similar tools, said software companies are frustrated by being called tax cheats and compared with companies that moved their headquarters to low-tax countries such as Bermuda.

Thompson called the Obama proposals "counterintuitive" to the administration's other stated goals of fostering an innovation-oriented economy.

"It is a little bit ironic that most of our most significant trading partners and partners globally have taken the tack that they'll reduce corporate tax rates to stimulate economic growth and not raise corporate tax rates," Thompson said.