Are unfair aspects of the U.S. tax code contributing to foreigners’ ability to acquire U.S. companies?
That’s the conclusion of a new study prepared by Ernst & Young for the Business Roundtable, called “Buying and Selling: Cross-border mergers and acquisitions and the US corporate income tax.”
The report states that “The United States has the highest statutory corporate income tax rate among developed nations and is the only developed country with both a high statutory corporate income tax rate and a worldwide system of taxation. These features of the US corporate income tax have disadvantaged US businesses in the global market for cross-border M&A.”
“Most developed countries impose little or no additional tax on the active foreign income of multinational companies. Today the United States is the only developed country with a worldwide system and a corporate income tax rate above 30%. Consequently, foreign companies can afford to bid more for acquisitions in the United States and abroad as compared to US companies.”
The report comes at a time when businesses feel that tax reform may be shifting to 2017 on Capitol Hill. Reports The Hill: “Businesses don’t see much of a chance for tax reform in 2015, a new survey found, despite previously thinking that full Republican control of Congress would boost the chances for a tax overhaul.”
“The survey, from Miller and Chevalier and the National Foreign Trade Council, found that businesses felt far more confident that tax reform could happen in 2017 –after a new presidential administration takes over.”
However, The Hill also reports that one potential Capitol Hill tax plan “would eventually raise $94 billion a year in revenue, according to a new analysis from a free-market group.”
“The Tax Foundation said the proposal from Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.), who has said he’s considering a White House run, would lose $1.7 trillion in revenue over the first decade. But the group said that the plan – which would slash capital gains taxes and allow businesses to write off investments immediately – would spark 15 percent economic growth over the long run, leading to the $94 billion a year in extra revenue.”
The Business Roundtable report also looks at the role of M&A in the global economy: “M&A plays an important role in both the US and global economies by allowing companies to reshape themselves in response to a changing economy. Divesting some lines of business and acquiring others allows companies to enter new markets, access distribution channels, develop new technologies, and release capital for reinvestment. For small, innovative companies in particular, M&A is a way to match their new ideas with the resources needed to bring them to market. As an indication of the importance of this market for start-ups, this report finds that the cross-border M&A market is dominated by small transactions with 50% less than $29 million.”