Risk & Economy » Tax » Tax inversions ‘unsurprising’, says Taxand chairman

Tax inversions ‘unsurprising’, says Taxand chairman

The US's harsh tax climate is driving companies to seek to create foreign tax centres, says Frederic Donnedieu, chairman of tax practice network Taxand

THE GROWING TREND of tax ‘inversions’ sought by US companies is no surprise given the country’s tax climate, according to the chairman of international tax practice network Taxand.

Inversions see companies set up foreign tax centres – in the US’s case to escape its high corporate rates in order to enjoy the kinder regimes abroad. Currently, the US imposes a 35% headline rate of corporation tax, along with additional local rates. The UK currently charges 21%, with that rate set to fall to 20% in April next year.

On top of that, unlike many other jurisdictions, US corporations are also taxed on their worldwide income.

The US regime is “at odds” with other jurisdictions across the globe which are taking steps to make their tax environments more attractive to multinational companies, Frederic Donnedieu said.

“The rationale for inversions is not simply on a reduction in the overall corporate tax rate, but also to escape the burden of complex US tax rules that add to compliance costs, such as the controlled foreign corporation legislation, and to satisfy longer-term business objectives in relation to overseas expansion,” he said.

Donnedieu’s comments come less than three months after the collapse of Pfizer’s attempted takeover of AstraZeneca and Canadian pharma company Abbvie’s acquisition of Shire, also at least in part motivated by tax. This month, San Francisco-based hedge fund Marcato contemplated a move for Intercontinental Hotel Group which would bring with it a UK tax base.

President Barack Obama has denounced so-called tax inversions as unpatriotic and has urged congress to stop them.

“They’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share,” Obama said recently.

Some moves to curb the practice have already been made, with a draft bill drawn up by veteran Michigan senator Carl Levin, who chairs the Senate permanent subcommittee on investigations.

The bill would impinge on redomiciling for tax purposes for two years by raising the threshold of foreign share ownership required for such a deal to be structured from 20% to 50%.

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