Pfizer effect: Hillary Clinton to propose exit tax on US companies shifting profits abroad
The US Democratic presidential aspirant Hillary Clinton will soon unveil some significant corporate tax proposals to deter US companies from shifting profits overseas. The most important step will be an “exit tax” on companies that perform “tax inversions,” according to the senior campaign officials of the Democrat leader.
The United States has the highest corporate tax rate at 35 percent, and in the past few years many companies have been trying to shift the tax jurisdiction out of the US to reduce the tax burden.
If the exit tax comes into being, companies like Pfizer will face penal provisions for shifting abroad for leveraging tax advantages, said the official, according to a report by Bloomberg. Clinton had criticised the Pfizer deal and said it would “leave U.S. taxpayers holding the bag.”
Clinton is expected to announce the plan in Iowa when she appears in the first-in-the-nation caucus state, the official said. The presidential candidate will also express her support for raising the threshold of shares that a US company is entitled to transfer to a foreign owner to gain tax benefits. Right now the limit is 20 percent, which will be raised to 50 percent. The proposal has the backing of Obama administration.
Inversion deal
An inversion deal entails the merger of a company with a foreign corporation to change the tax address to obtain a lower tax bill, adds a Reuters report. In a classic case of inversion, drug major Pfizer announced the deal to buy Allergan for US$160 billion (AU$221 billion) in November to cut the US tax bill.
The buy out would pave way for the world's largest drug maker to shift its headquarters to Ireland. The process of moving the New York-based drugmaker's tax address to Ireland will be completed by the end of 2016, before the new president takes office.
Profit shifting
Democrats as well as Republicans have been urging for corporate tax reform to block tax inversions, citing Pfizer deal as the latest blow. The Democrats in Congress had made an unsuccessful bid to bring a legislation to crack down on inversions since that trend began in 2012 by companies such as Burger King Worldwide Inc., Medtronic Inc., and Mylan Inc.
However, Republicans are seeking a wider remedy by calling for a broader revamp of the tax code. But that is yet to make any progress. Meanwhile, Republican presidential aspirant Donald Trump slammed Pfizer's departure and said the American politicians “should be ashamed.”
For feedback/comments, contact the writer at feedback@ibtimes.com.au or let us know what you think below.
