The US Treasury took action on Monday to halt a rising torrent of US companies moving offshore to cut their tax bills, saying that the surge in so-called inversions threatened US government income.
The move to close loopholes that encourage US companies to merge with foreign firms and relocate their tax residences offshore could stifle takeovers announced this year worth hundreds of billion of US dollars.
Those include several high-profile medical industry deals, including AbbVie Inc’s US$55 billion purchase of Shire PLC and Medtronic Inc’s US$43 billion merger with Covidien PLC, as well as Burger King Corp’s US$11 billion tie-up with Tim Hortons Inc and Chiquita Brands International Inc’s proposed US$1 billion merger with rival Fyffes PLC.
The Treasury said it was moving after the US Congress failed to act on the issue.
“We cannot wait to address this problem,” Treasury Secretary Jack Lew said. “These first, targeted steps make substantial progress in constraining the creative techniques used to avoid US taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and, when possible, stopping them altogether.”
The measures take aim particularly at expectations that a company, after an inversion, would be able to take advantage of earnings accumulated and held by the US partner offshore without ever paying taxes on it.
Currently many US companies retain substantial foreign earnings offshore to avoid taxes they would have to pay upon repatriating them into the US.
Inversion deals, with the US company redomiciling itself to the home of the other partner in the deal, ostensibly allowed the new “foreign” firm to take control of those earnings and use them, even in the US, without paying taxes on them.
However, Lew said that this advantage would be blocked by the new rules. The new foreign parent of the company is to be deemed as owning shares in the former US parent, making it liable for taxes on the old offshore earnings.
Other parts of the inversion strategy, involving loans between the partners in the new company and asset transfers, also are not to bring any tax advantages to the new company.
“Genuine cross-border mergers make the US economy stronger by enabling US companies to invest overseas and encouraging foreign investment to flow into the United States,” the Treasury said.
“But these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of the parent entity to a low-tax jurisdiction simply to avoid US taxes,” it added.
The surge in inversions, more than US$200 billion worth this year, according to the Wall Street Journal, had given rise to a scare over possible job losses, loss of US control of technologies and, in particular, an erosion of the US tax base.
It also provoked fears of tax competition by jurisdictions — countries cutting their rates specifically to attract companies, just as leading economies are struggling to balance their budgets by boosting income.
Earlier this year, US President Barack Obama branded companies pursuing inversions as unpatriotic, benefiting from the economic environment in the US, but avoiding the taxes that pay for it.
“They are technically renouncing their US citizenship... You know some people are calling these companies ‘corporate deserters,’” he said in July.
Obama applauded the Treasury’s move.
“We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill,” he said in a statement. “And I’m glad that Secretary Lew is exploring additional actions to help reverse this trend.”
Quanta Computer Inc (廣達) chairman Barry Lam (林百里) is expected to share his views about the artificial intelligence (AI) industry’s prospects during his speech at the company’s 37th anniversary ceremony, as AI servers have become a new growth engine for the equipment manufacturing service provider. Lam’s speech is much anticipated, as Quanta has risen as one of the world’s major AI server suppliers. The company reported a 30 percent year-on-year growth in consolidated revenue to NT$1.41 trillion (US$43.35 billion) last year, thanks to fast-growing demand for servers, especially those with AI capabilities. The company told investors in November last year that
Intel Corp has named Tasha Chuang (莊蓓瑜) to lead Intel Taiwan in a bid to reinforce relations between the company and its Taiwanese partners. The appointment of Chuang as general manager for Intel Taiwan takes effect on Thursday, the firm said in a statement yesterday. Chuang is to lead her team in Taiwan to pursue product development and sales growth in an effort to reinforce the company’s ties with its partners and clients, Intel said. Chuang was previously in charge of managing Intel’s ties with leading Taiwanese PC brand Asustek Computer Inc (華碩), which included helping Asustek strengthen its global businesses, the company
United Microelectronics Corp (UMC, 聯電) forecast that its wafer shipments this quarter would grow up to 7 percent sequentially and the factory utilization rate would rise to 75 percent, indicating that customers did not alter their ordering behavior due to the US President Donald Trump’s capricious US tariff policies. However, the uncertainty about US tariffs has weighed on the chipmaker’s business visibility for the second half of this year, UMC chief financial officer Liu Chi-tung (劉啟東) said at an online earnings conference yesterday. “Although the escalating trade tensions and global tariff policies have increased uncertainty in the semiconductor industry, we have not
Taiwanese suppliers to Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) are expected to follow the contract chipmaker’s step to invest in the US, but their relocation may be seven to eight years away, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. When asked by opposition Chinese Nationalist Party (KMT) Legislator Niu Hsu-ting (牛煦庭) in the legislature about growing concerns that TSMC’s huge investments in the US will prompt its suppliers to follow suit, Kuo said based on the chipmaker’s current limited production volume, it is unlikely to lead its supply chain to go there for now. “Unless TSMC completes its planned six
RSS