Redomestication

[John Houbion + 31]

As I mentioned, it paid US companies to manufacture abroad and enjoy a 16-25 % VAT export subsidy.

The VAT is a non-tariff trade barrier for US exporters, a bonanza for foreign exporters on top of the 35 % to 21 % reduction of the corporate tax.

Foreigners are killing the goose laying the golden eggs, trillion US deficits are unsustainable.

Thanks,   JOhn

 

 

U.S. tax cuts prompt rethink by some 'inverted' companies

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WASHINGTON (Reuters) - A few U.S. companies that moved offshore in a wave of inversion deals are considering returning to the United States now that domestic tax rates are lower and tax policing is tougher abroad, attorneys and consultants said.

A handful of clients have asked about redomestication, which could involve buying a U.S.-headquartered company, the tax advisers said. No specific companies or deals were identified.

Uncertainties about U.S. Republican President Donald Trump’s trade policies have also prompted the conversations, the advisers said.

“Inverted companies have reason to look at whether or not it still makes sense for them to be offshore, particularly those that manufacture product outside the U.S. and sell it back into the U.S.,” said Pam Olson, a Washington-based tax expert at accounting and consulting group PwC.

A surge of homecomings would reverse an on-again, off-again trend since the 1980s of U.S. companies reincorporating overseas to cut tax costs.

In an inversion, a U.S. company typically buys a smaller foreign firm in a lower-tax country and adopts the acquired firm’s headquarters.

That maneuver means the company does not have to pay U.S. taxes on foreign income, even if its management and operations remain in the United States.

Trump’s public shaming of companies that move plants and jobs overseas has also made some consumer-focused firms rethink inversions, advisers said.

Executives at inverted companies see less tax “friction” under the new tax regime that would discourage redomiciling, advisers said, and have also mentioned the appeal of corporate-friendly, low-tax states and improved access to U.S. government contracts in the discussions.

More than 60 U.S. companies have inverted, including medical device maker Medtronic Plc (MDT.N). There was a wave of deals in 2011-2014, but inversions largely ended in 2015 after a regulatory crackdown by Democratic President Barack Obama.

Pfizer Inc (PFE.N) walked away from a $160 billion merger with Ireland-based Allergan Plc (AGN.N) in 2016 because of new U.S. Treasury rules.

The Trump administration last month finalized and left in place the Obama-era rules.

The Republican tax overhaul signed into law in December eliminated a key inversion incentive by slashing the U.S. corporate rate to 21 percent from 35 percent and altering how foreign profits are taxed.

A push to prevent profit-shifting strategies and corporate tax base erosion across the 36-nation Organisation for Economic Co-operation and Development is also making foreign tax domiciles marginally less attractive, especially in Europe.

Tax advisers said it is still possible to structure lower tax rates in countries such as Ireland and the Netherlands.

How the U.S. Treasury implements parts of the new tax law will help determine whether companies return to the United States.

A new tax on Global Intangible Low Taxed Income, or GILTI, on its face imposes a 10.5 percent tax rate. But because the bill is poorly worded, it can result in rates of 15 percent or more due to unfavorable effects on foreign tax credits.

GILTI’s implementation could influence tax-base decisions among companies redomiciled in Britain, which may consider whether to relocate to the United States or other countries to avoid the effects of Brexit.

Redomiciling to the United States is a case-by-case decision, said Joe Calianno, tax partner at financial advisory firm BDO.

“It really is a modeling exercise to determine whether it’s more beneficial being a U.S.-based company versus a foreign-based company,” he said.

Reporting by David Morgan; Editing by Kevin Drawbaugh and Meredith Mazzilli

 

[Epic + 390]

3 hours ago, John Houbion said:

“Redomiciling to the United States is a case-by-case decision.  It really is a modeling exercise to determine whether it’s more beneficial being a U.S.-based company versus a foreign-based company,” he said.

...it pains me that even now after the tax reform US companies still must question whether or not they should work in the US.  Pause a moment and think about that: US companies unsure if they should work in the US.  There is something very clearly wrong with US law.  The tax reform was a great step in the right direction, but it clearly did not go far enough to right those wrongs. 

Imagine for a minute how much greater the US could be if they were allowed to import workers rather than goods.  The the once-great nation that we now call the USA was founded on that very concept: import workers and develop their talent.  People are what will make a nation great, not products. 

[Dan Warnick + 6,100]

5 hours ago, John Houbion said:

U.S. tax cuts prompt rethink by some 'inverted' companies

Thank you, John.

This illuminating article shakes me to the core.  Here I was, drinking a nice coffee and reading an article on my Saturday, when the gravity of reality came crashing down on me.  Why is nobody SHOUTING this information to the masses (of U.S. citizens)?  This is such a big deal.  I believe if someone had been able to lay this out to the people of the U.S. as companies were heading for the doors and leaving their workers behind, those same citizens would have descended on the steps of government to get the laws changed.  Just when you think you have some small grasp on how things work, along comes information like this that makes it clear that you have fallen victim to the spin.  Sheesh!

[Jan van Eck + 7,558]

3 hours ago, Dan Warnick said:

Thank you, John.

This illuminating article shakes me to the core.  Here I was, drinking a nice coffee and reading an article on my Saturday, when the gravity of reality came crashing down on me.  Why is nobody SHOUTING this information to the masses (of U.S. citizens)?  This is such a big deal.  I believe if someone had been able to lay this out to the people of the U.S. as companies were heading for the doors and leaving their workers behind, those same citizens would have descended on the steps of government to get the laws changed.  Just when you think you have some small grasp on how things work, along comes information like this that makes it clear that you have fallen victim to the spin.  Sheesh!

Then again, there are other solutions.  One would be to take the position that companies that do an inversion into an overseas company will face a 100% tariff on their products upon entry into the USA.  And, because a tariff is a civil matter, that can be made retroactive. 

Another solution would be to place a 96% income tax on the domestic income of any company that executed an inversion.  And that takes the fun out of it.  

If "managers" are going to shirk their civic responsibilities by doing cute things that amoral lawyers dream up, then whack them hard.  Sometimes corporate responsibility has to be instructed with a hard switch on the rear behind the barn. 

[John Foote + 1,135]

The issue is complicated, and my dream would be to do business in the United States, you pay the piper. And I don't care if you are Chinese, USA, Russian, EU, or where ever.

In most cases trying to define a large multinational corporation as "American" is going after fools gold. Maybe a year ago, with H.E. Khalid Al Falih meeting a Trump contingent I was tasked to put together the top 100 American companies doing business with Aramco. I produced a list, but what is American is quite subjective, and many on the list have moved their headquarters offshore, but still thought of as American companies. Many foreign companies have large footprints in the USA and are traded on the NYSE. Years ago I owned a Toyota Sienna. The percentage made in North America was higher than comparable GM, Ford, or Chrysler products. The transmission and windshield were the only major Japanese components. Is Chrysler Italian. Are Volvos Chinese? Is Bechtel really American?

I currently work for an American company, who exports, and the USA is only 10% of the revenue. And tariffs are going to really hurt. The product isn't targeted anywhere, but it is going to cause embedded material costs to go up. Some of the tariffs you can reclaim on the export side, but not nearly enough if things proceed on schedule.

In a public corporation the leadership is morally and legally bound to maximizing shareholder's wealth. A private company can do whatever. Governments have to find a way to make folks who benefit by the USA market to pay their share. It can be done. Just as companies don't source from child labor camps, hold factories that import to the US to US safety, environmental, and labor standards. But it will raise costs, but levels the field. And I'm fine with that, the costs over time would level load to some degree. 

Years ago I lost a job because manufacturing was moved offshore. In this case, the move didn't lower manufacturing expenses, it actually raised them. But Wall Street loved it because it was great for lowering taxes. And it wasn't the tax rate that was the concern. It let the "Value Add" be created in a very low tax environment. 

The issue is complicated, and with every solution, CPAs and lawyers start on the next workaround.