- Wed, 08/06/2014 10:03 AM
Numerous corporations are planning to give up their US citizenship in the next few months, which would deprive the federal government of billions of dollars in tax revenue. Washington policymakers are bracing themselves for this wave, but are yet to come to a conclusion as to what would be their course of action to meet the shortfall in tax revenue. This has also caused a public outrage just before the Nov 4 congressional elections. Around a dozen US companies have merged with foreign companies and have shifted their headquarters offshore to escape taxation in the US. A couple of major companies that have followed the trend are Medtronic medical devices and Chiquita bananas.
As per the analysts, dozens of other companies are planning to shift their base elsewhere, and many giant companies are also quietly contemplating the move to shift their headquarters to save on taxes. According to Sen. Charles E. Schumer (D-NY), many big announcements may be made in August. As other nations adopt lower taxes for the corporations and give major corporations, other conveniences on tax exemptions, the US companies, which have been branching out majorly in the past few years have been shifting their base and making offshore a basis.
This has given a rise to tax inversion, a trend that has been in place for years, but has now accelerated due to corporations seeing a huge savings on their tax bills annually. The executives in the US companies have also started to get frustrated with the political gridlock in Washington, which have not been revised the federal corporate tax of 35 percent, which is higher than any other advanced economy in the world. The biggest US drugstore chain, Walgreens is also considering moving its headquarters to Switzerland to save billions of dollars on taxes. Last month, President Obama openly questioned the patriotism of these inverted companies by saying they are deserting their country by not paying their fair share of taxes, and expressed his opinion although it is legal, it is wrong. However, the company executives believe that the companies have to think of their shareholders as well and it is not in their best interest to continue to pay 35 percent tax year after year, when much of it can be saved and paid on profits to its shareholders.
The executives of the top companies believe that the federal tax structure for the corporate sector need to be fixed and revised on an urgent basis to break this trend of tax inversion, which is popularly being adopted by numerous enterprises to save on taxes. By shifting the headquarters offshore, the companies are saving taxes on their foreign earnings, which even though is still taxable, but on lower rates. US policymakers are thinking of ways to stop the wave of inversion in the US corporate sector to not only help the US companies keep their headquarters in their home country, but to also save billions of dollars in taxes, which otherwise would be lost if inverted.