Large Multinational Corporations Increasingly Moving Headquarters Overseas To Avoid Tax Hikes Resulting From Fiscal Cliff

Thursday, August 30, 2012 06:54
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Large Multinational Corporations Increasingly Moving Headquarters Overseas To Avoid Tax Hikes Resulting From Fiscal Cliff

Tags: economy | tax law | Taxes

Higher taxes at home are causing more and more large US companies to incorporate outside the country in spite 2004 federal legislation that was designed to deter them from doing so.

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Among the reasons companies list for incorporating abroad is a desire to expand their operations further into the global marketplace. Some cite that they wish to be in closer proximity to their customers.
 
Many, however, are incorporating abroad out of fear that higher taxes will rise if the current tax laws are allowed to expire at the end of this year. For example, by moving overseas, a company might lower its tax rate by five percentage points over time.
 
For a company currently paying a tax rate of 28%, that could mean as much as $100 million in additional annual profits.
 
Since 2009, ten US public corporations have either moved their incorporation address or announced plans to do so. Six of those have been during the past year.
 
Eaton Corporation, a manufacturer of components and electrical equipment, announced in May that it would acquire Cooper Industries PLC, a company that moved to Bermuda in 2002, and subsequently to Ireland in 2009.
 
Now, Eaton plans to move its corporate headquarters to Dublin. The company said the move would result in a $160 million annual tax savings starting in 2013.
 
Companies are vocal about the uncompetitive nature of US tax laws from an international perspective. The 2004 law was designed to prevent companies from relocating to foreign countries but the law also included exceptions that permitted companies to relocate to foreign countries where they already had established significant businesses.
 
The top corporate tax rate currently is 35% but many multinational companies pay less because of various loopholes. The Obama administration is pushing to lower that rate to 28%; Republican presidential contender Mitt Romney wants to lower it to 25%. The tax rate in Ireland is 12.5%.
 
US companies are also required to pay taxes on profits they earn abroad; other countries only require taxes to be paid on domestic earnings.
 
With many of the wealthy in the US also seeking to renounce their US citizenship, the tax base of the US both from an individual and corporate basis could decline significantly if current laws are allowed to expire.
 
With significant cuts in spending also slated at the expiration, the nation could begin to face similar challenges as many of the states grappling with issues forcing some of them into bankruptcy.

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