MOSCOW, August 6 (RIA Novosti) - More and more US corporations are relocating their headquarters to outside the United States in an effort to evade paying high corporate taxes, according to The Washington Post.
Washington policymakers expect a surge of US companies to renounce their citizenship, depriving the government of billions of dollars in tax revenue. So far in 2014, about 12 US firms have merged with foreign businesses and moved their headquarters abroad, and more deals are in the works.
The maneuver is known as "tax inversion" and has accelerated in recent years. It is little surprise overseas nations look more appealing to American companies, as the 35 percent federal corporate tax in the United States is higher than that of any advanced economy.
"What we’re seeing is one more manifestation of why the business tax structure needs to be fixed," John Engler, the president of the Business Roundtable, an association of chief executives at some of the nation’s largest corporations, told The Washington Post.
Tax inversion often implies merging with or purchasing foreign companies in countries with lower taxes. Using the mechanism profits earned in the United States are still subject to the 35 percent rate, but profits earned outside the country are subject to lower foreign rates.
US President Barack Obama was quoted by the newspaper as saying that companies wanted "just to get out of paying their fair share of taxes." Officials say only legislative changes can fully tackle the issue of tax inversion.
"We are losing revenue, we are losing corporate headquarters and we are losing jobs. We have to do comprehensive tax reform," Patrick Tiberi, a senior member of the tax-writing House Committee on Ways and Means, said.
Obama suggested that Congress make tax inversions more difficult by requesting 50 percent control of the company to shift abroad instead of the current 20 percent. However, many Republicans and some Democrats oppose the idea due to the risk of facilitating foreign takeovers.
Republicans also complained that Obama had done little to lower the corporate tax rate to the desired 28 percent. Meanwhile, Democrats have proposed plans to limit the profitability of tax inversions and even outlaw them entirely. If nothing is done, the United States may lose about $20 billion in tax revenue over the next ten years.
A decade ago, the Cayman Islands were the favorite place for US companies to relocate. Presently, Europe is gaining popularity, with Ireland as one of the frontrunners thanks to its 12.5 percent tax rate.