Daily Management Review

Is Fight with Tax Inversion Useless?


A year after the US Treasury started actions against US companies transactions that allow escaping the US tax jurisdiction (tax inversion), local experts see no tangible results. Many US companies manage to merge with foreign companies, and then the headquarters of the combined company is simply derived from the United States.

September 22, the leading American media sum up the first year of government fighting with tax inversion, with help of which some corporations go out of the US tax jurisdiction in order to optimize tax deductions. Recall that in 2014, US corporations have become quite active user of tax inversion.

The most notorious case, that has caused widespread public outcry, was the Burger King’s purchase of the Canadian coffee chain Tim Hortons for $ 11.5 billion in August. The corporate tax rate is 35% in the US, meanwhile Ontario, where Tim Hortons is headquartered, has it 26 ,5%. After a wide resonance, the US government decided to take measures to deal with such transactions. September 22, the US Treasury Department announced the introduction of new rules by which companies will pay taxes to the United States, despite its new registered address outside the United States. The rules must be applied if activity volume of the newly established company’s is less than 25% in the country of registration; if the shareholders of the former US parent companies own at least 60% of the new foreign parent company; if the share of the US new foreign shareholders in the parent company is not less than 80%.

Yet, some companies have been able to adapt to new requirements and continued tax inversion. In August alone, there were two major merger involving US companies – the producer of fertilizer CF Industries announced their merger in a deal for $ 6 billion with the Dutch OCI.

Distributor of Coca-Cola Company, Coca-Cola Enterprises, announced a merger of three of its European operations totaling $ 12 billion. After these transactions, US companies have announced plans to move its headquarters to Britain, where corporation tax is 20%, whereas in the US - 35%.

The most recent example - purchase of US cable operator Cablevision by Altice company, owned by French billionaire Patrick Drahi and registered in the Netherlands.

US media quoted legal and tax experts, who argue that the government should be unhappy with these results of their struggle against the withdrawal of US companies from the US tax jurisdiction.

- I think that the Ministry of Finance are extremely concerned," - a senior fellow at the Washington-based Center for Tax Policy Steve Rosenthal said in an interview with Bloomberg. In turn, the Ministry of Finance issued a report, which is actually blaming the United States Congress.

- When there is no action on the part of Congress, our ministry takes action within its own competence. These measures have had some effect, but only Congress can fully close this loophole.

source: bloomberg.com

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