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US think tank focus on Irish 'inversions

Friday, May 23 12:17:03

The US taxman is losing USD2bn a year and the US economy thousands of jobs because of the so-called "inversion" manoeuvre by US multinationals shifting their base to Ireland.

That's according to David Brown, an economist with the highly influential Washington think-tank, Third Way.

He lays no blame on Ireland, indeed in a widely-read blog post he commends Ireland's enterprise-centred culture, and instead takes aim at America's corporate tax code.

"Inversion happens because our (US) bloated corporate tax code is bad public policy, severely handicapping U.S. businesses relative to their foreign competitors," he writes.

He said that US law now requires an American company looking to move its headquarters overseas to use a merger or acquisition with a foreign company at least one-fifth its size, favouring countries like Ireland.

"This mostly took the Caymans out of the picture, because only shell companies locate there. But Europe is a more attractive corporate destination than it was 15 years ago. Countries like Ireland, the Netherlands and the UK noticed that in today's globalized world, a competitive corporate tax code matters more than ever. So they lowered their corporate tax rates and eased taxation of foreign-earned income," he said.

Ireland's corporate tax rate of 12.5pc compared to America's 35pc statutory rate, which is highest among the world's developed economies.

"While few companies pay an average rate that high, numerous tax preferences raise compliance costs and skew incentives," Mr Brown said.

Altogether, since 2012, at least 14 U.S. companies have completed or considered inversion deals.

He cites Chiquita as a classic example.

Later this year, Chiquita will merge with Fyffes, an Irish fruit distributor half its size. Usually the larger company buys the smaller one, but not anymore. Entirely because of taxes, a newly formed Irish company will control the merged companies. Chiquita will remain listed in the U.S., but its headquarters will move to Dublin, unlocking access to the favourable Irish tax code.

" A simpler, more competitive corporate code shouldn't be confused for a giveaway to corporations or the wealthy. Research suggests that if Chiquita were to spend less preparing and paying corporate taxes, its shareholders and its workers share the benefit. Most importantly, so would the broader U.S. economy, which would attract and retain more business and more jobs. It's bananas for the U.S. to sit back and do nothing as good American companies decamp for Europe," he added.