vrijdag 17 april 2015

How Taxes Affect Investment Decisions For Multinational Firms

If you were a multinational firm, where would you locate your activities and investments? A handful of economic factors play a role in this decision, but for tax-related aspects, you would think in terms of an average effective tax rate. It's not that complicated; let me explain.

Taxes matter. Taxes specifically play a role in where multinational firms locate their economic activity, for example, plants and equipment. In the debate on corporate tax reform, however, the discussion of individual countries' corporate tax rates and how they affect multinational firms' decisions to invest focuses almost exclusively on the statutory tax rate. Although the statutory tax rate in some sense is a useful proxy, it's actually often quite distinctly different in magnitude from the rate that is more meaningful: the average effective tax rate.


My opinion on this matter:

If I was a multinational firm, I would choose the Netherlands. The Netherlands is globally famous for being one of the premier locations for international business operations. In addition, the Dutch government has created a competitive tax regime that stimulates entrepreneurship and foreign investment in the Netherlands. Not only the corporate tax rates are lower in relation of its European neighbours, there are also numerous features that make it attractive for foreign companies to locate operations in the Netherlands. Some examples of attractive features: Advance Tax Ruling policy (offering certainty on future tax positions), absence of statutory withholding taxes on outgoing interest and royalty payments, absence of capital tax, ... .

donderdag 16 april 2015

Business Roundtable Report: Cross-border Mergers and Acquisitions and the US Corporate Income Tax

The United States has the highest statutory corporate income tax rate among developed nations and is the only developed country with both a high statutory corporate income tax rate and a worldwide system of taxation. These features of the US corporate income tax have disadvantaged US businesses in the global market for cross-border M&A.
Most developed countries impose little or no additional tax on the active foreign income of multinational companies. Today the United States is the only developed country with a worldwide system and a corporate income tax rate above 30%. Consequently, foreign companies can afford to bid more for acquisitions in the United States and abroad as compared to US companies.
This report analyzes the cross-border M&A market and how the US corporate income tax has disadvantaged US companies in this market. Differences in statutory corporate income tax rates and the over 25,000 cross-border M&A transactions among the 34 OECD countries are examined in a statistical model over the 2004-2013 period. Transactions with both US and non-US targets and US or non-US acquirers are included.
The EY report finds that a US corporate income tax rate of 25% would have significantly reduced the disadvantages of US companies and would likely have resulted in the United States being a net acquirer in the cross-border M&A market.