Profit-hungry US corporations see a lot more green abroad — and the number relocating overseas for corporate tax advantages is set to soar, according to financial experts.
With the latest intense focus on corporate “inversions,” or mergers that allow US corporations to legally transfer their headquarters to Ireland, the UK, Luxembourg and other lower-tax jurisdictions, experts are raising a new alarm.
A nightmare scenario could soon see unprecedented numbers of US corporations quitting America to avoid paying billions of dollars in taxes, they warn, costing jobs and a huge capital flight.
“The high US corporate tax rate will continue to encourage US companies to head for the exits,” Dean Zerbe, former senior counsel to the US Senate Finance Committee, told The Post. Zerbe, who worked closely with the current ranking minority member of the committee, Sen. Charles Grassley (R-Iowa), added: “Corporate tax lawyers will continue to sharpen pencils late in the night to avoid US corporate taxes as long as the rates are so high.”
Zerbe’s assessment is shared by others. Nigel Green, founder and chief executive of deVere Group, an independent global financial advisory, says that unless the current US corporation tax rate of 35 percent is slashed, a growing number of American multinationals will say adios.
A Congressional policy research group has counted 76 US corporations that since 1983 shifted their tax residence to a foreign address. In the past decade alone, 47 moved, the most since 2008, it noted.
These American companies are often eyeing a pot of gold as shareholders draw blood for reduced costs and higher profits, critics charge. Nearly $20 billion in potential US tax revenues could go “uncollected” because of controversial corporate inversions in the coming decade, a Congressional committee estimates.
The eyebrow-raising inversion deal of the year is one example of the potential tax bloodletting: Irish-based healthcare outfit Covidien agreed to be acquired by Minnesota-based medical device company Medtronic. The $42.9 billion deal will result in Medtronic shifting its principal legal address to Ireland, a move that would sharply reduce its tax bill.
That ultimately slashes Medtronic’s corporation tax to the much lower 12.5 percent rate prevailing in Ireland.
Call it the luck of the Irish.
But President Obama
has blasted US corporations for playing games by “magically” transforming into “Irish companies” — simply by buying a company in Ireland.
Apple, critics say, is an expert in complex tax arrangements, saving billions by having a large workforce in Ireland. Apple has come in for criticism by Washington for paying corporation taxes that, via complicated loopholes, may be as low as 3 percent.
Senate investigators recently showed how Apple saved taxes on $44 billion of offshore income over several years.
Google, another significant employer in Ireland, is said to employ the “Double Irish” tax arrangement. That has resulted in the majority of its worldwide profits avoiding income tax anywhere, experts say. Google’s worldwide income-tax bill was reportedly slashed by $2.2 billion in 2012.
Green is not surprised. “It is our experience that the vast majority of American companies do want to remain headquartered in America,” he said. “But with the tax code as it stands, and with obligations to shareholders, there is mounting pressure to consider overseas, low-tax destinations.”
Zerbe thinks lawmakers might be barking up the wrong tree. “Congress and the administration need to focus on fixing the problem — high corporate rates — and not just focusing on the symptoms — inversions,” he said.