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Berginski: To stop inversion, change taxation

By Staff | Sep 5, 2014

By now I’m sure most of you have heard that Burger King bought Canadian coffee and doughnut chain Tim Hortons and moved its corporate headquarters to Canada. BK says it has more to do with expanding national brands (namely Tim Hortons) internationally than it does with lessening their tax rates, although a lower tax rate over time is hard to ignore.

According to an article in USA Today, what BK is doing is a practice called “inversion”: a company in the U.S. – which has a 35 percent corporate tax rate – merges with or buys a foreign company and moves their corporate headquarters to the country where their recent partner or acquisition is based. Even though the profits the American company makes stateside are subject to taxes, the company enjoys a lower tax rate than they would pay if they stay in the U.S. (Whereas a company that’s based in the U.S. and brings back profits made abroad gets taxed on those profits as well as profits made in the U.S. Other countries tax profits made within their own borders.) You know what else a company that has “inverted” can also do? On paper they can make it seem like they’ve not made any new, taxable money, or they can “move” money from country to country, all tax free (a practice known as “hopscotching”). According to an article in The Economist, some American multi-national companies could be hoarding and hopscotching over $2 trillion.

On reading that, some of you might think, “Well that’s just un-American!” What gets me is that we bemoan when companies outsource, but we’ll buy stuff that’s made in China because it’s cheap. We say things like this are “un-American” and that we should boycott the parties involved. Some Democrats are demanding legislation to make the practice illegal, and some Republicans are showing interest in it. And yet the solution is right in front of their faces: lower the rates and change how we tax.

We need to tax territorially, so as to discourage “hopscotching” and the like. If other countries do it, why can’t we?

We need to lower the corporate rate. Compared to Taiwan, China, Malaysia, Sweden and Switzerland, with corporate tax rates that are under 30 percent, the U.S. rate sounds steep. It discourages companies from investing in the U.S., which is what we should want. Easing the rate may make companies consider doing just that.

Any attempts to do both must be separate legislation. If it were to be lumped into some personal income tax legislation, or if it were to tied to some attempt to raise more money for government programs, nothing would be done about it.

We don’t want businesses, big or small, but in this case big, to leave and not invest in this country. But until things change, more could consider doing that.

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