US seeks to head off further tax inversion attempts

by Calum Fuller

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06 Aug 2014

  • Financial Director
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US President Barack Obama

THE UNITED STATES is set to take steps to prevent further attempts by US-based companies to set up foreign tax centres.

The tactic, known as inversion, is primarily motivated by the disparity between the US's high 35% corporate rate and the UK's imminent 20% rate, brought in by the coalition to attract additional business to the UK. The current rate is 21%.

It comes less than three months after the collapse of Pfizer's attempted takeover of AstraZeneca and Canadian pharma company Abbvie's acquisition of Shire, also at least in part motivated by tax. This week, San Francisco-based hedge fund Marcato contemplated a move for Intercontinental Hotel Group which would bring with it a UK tax base.

President Barack Obama has denounced so-called tax inversions as unpatriotic and has urged congress to stop them, the Associated Press reports.

"They're basically renouncing their citizenship and declaring that they're based somewhere else, just to avoid paying their fair share," Obama said recently.

Democrats are looking to make it harder for businesses to reincorporate outside the country, while Republicans would prefer to lower the corporate tax rate so as to remove the incentive to consider relocation.

Some moves to curb the practice have already been made, with a draft bill drawn up by veteran Michigan senator Carl Levin, who chairs the Senate permanent subcommittee on investigations.

The bill would impinge on redomiciling for tax purposes for two years by raising the threshold of foreign share ownership required for such a deal to be structured from 20% to 50%.

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