Multinational Execs seek tax changes for US units
BUD, NSRGY, GSK
Corporate executives of US units of foreign-based companies including Nestle SA (VX:NESN), (PK:NSRGY) Thursday pushed for changes in the US. tax code that they argue would encourage more foreign investment in the United States.
The US tax code’s restrictions around certain deductions and high corporate tax rate limit the attractiveness of keeping business in the US, executives told lawmakers Thursday at a hearing of the Revenue Measures panel of the House Ways and Means Committee.
Many businesses whose parent companies are HQ’d abroad share a move by many US-based businesses to lower the current top corporate-tax rate of 35% , said Nancy McLernon, chief executive of the Organization for International Investment, a business association of U.S. units of foreign-based companies including drug maker GlaxoSmithKline PLC (NYSE:GSK), (LN:GSK) and brewer Anheuser-Busch InBev NV (NYSE:BUD),(BT:ABI). “We strongly believe that reducing the U.S. federal corporate income-tax rate will significantly increase investment in the United States,” she said Thursday.
Business executives pushed back Thursday against laws that Congress first passed in 1989 to limit the tax deductions that U.S. subsidiaries can take for interest paid to foreign companies, depending on how much debt they have. Lawmakers have long been concerned with “earnings stripping,” which involves a foreign company shifting debt to its U.S. subsidiaries to take advantage of tax deductions for interest and other payments. Congress since then has tightened the rules several times to limit these deductions.
These rules are “overly broad, have a discriminatory impact on US subsidiaries, and serve to reduce investment in the United States,” McLernon said.
Alexander Spitzer, the top tax executive at the US unit of Swiss food company Nestle, said the ability of US-based affiliates “to deduct ordinary and necessary business expenses related to investment such as interest and royalties for both federal and state purposes is of great concern and weighs heavily on our investment decisions.”
A Y 2007 Treasury Department report found “strong evidence of earnings stripping” among US companies that have shifted their structures so their parent companies are now headquartered in a foreign country. However, the report did not find “conclusive evidence” of earnings stripping among foreign-based companies doing business in the US.
State taxes can also make it harder and more expensive to comply with the code, business executives said. State sales tax and other provisions “make certain type of transactions extremely costly and or cumbersome,” Claude Drasrrd, chief financial officer of Dassault Falcon Jet Corp., the US unit of France-based business and military aircraft manufacturer Dassault Aviation S.A. (FR:AM), said Thursday.
Republican lawmakers voiced support for changes to the tax law if they could help companies generate more US jobs.
“It seems to me that looking at those policies that are having a detrimental impact and making the kinds of suggestions you’ve all suggested would help us with our unemployment problem,” said Rep. Charles Boustany (R., La.)
US Democrats said they broadly supported law that did not make it less attractive for foreign-based companies to invest in the Us, but should not create big competitive advantages for foreign companies through special interest deductions, for example.
“In my opinion, we should treat foreign and domestic companies equally,” said the subcommittee’s top Democrat, Rep. Richard Neal of Massachusetts.
Direct foreign investment in the US rose 49% to US$228B in Y 2010, from US$153B in Y2009, the White House said earlier this week.
Mr. Austan Goolsbee, Chairman of US President Barack Obama’s Council of Economic Advisers, said these investments support 5.7 million workers in the US. To further boost direct foreign investment, Goolsbee said the administration wants to make permanent a tax credit for companies’ research-and-development costs, as well as overhaul the corporate-tax code.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
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