American Companies Now Selling to Foreign Investors to Avoid High Corporate Income Tax
March 3, 2015
Compared to 2014, it is far more difficult in 2015 for American business owners to reestablish their companies in a foreign country offering lower corporate tax rates. Yet, new regulations imposed by the Obama administration to prevent tax inversions have primed U.S. corporations for foreign investments.
Canadian investors, for example, recently purchased Salix; a North Carolina based pharmaceutical company. As a result, the new Canadian owners benefited from a lower tax rate (26 percent) and upon public announcement traded up their shares 14.7 percent, whereas shares of the American firm fell 1.3 percent.
Why are American companies selling to foreign investors? The U.S. Treasury taxes foreign-sourced income when it returns to the United States, whereas most nations only tax local operations. American corporations are also required to pay a 39 percent corporate income tax; the second highest tax rate in the world.
Even newly proposed reforms disadvantage American companies. Consider:
- Obama has proposed a 14 percent tax on all prior corporate profits sitting in foreign countries.
- Obama has proposed a 19 percent tax on all future profits of repatriated corporations.
- Obama has proposed to reduce the corporate tax rate from 35 percent to 28 percent, which would still rank among the highest tax rate in the world.
The Republican-led Congress could abolish or dramatically lower the corporate tax rate and lower the capital gains tax as incentive for American businesses not to sell their companies to foreign investors.
Source: Ciaran McEvoy, "Tax System Gives Edge to Foreign Buys of U.S. Firms," Investors.com, February 23, 2015.
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