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US Corporate Exit Tax Suggestion

by Mike Godfrey,, Washington

03 December 2015

Steven Rosenthal, Senior Fellow at the Urban Institute, has written in the Tax Policy Center blog that Congress could slow corporate tax inversions by imposing an exit tax on US companies with deferred earnings.

Inversion techniques are being used by some US multinationals to move their tax residences abroad – away from the high 35 percent US headline federal corporate tax rate – and to unlock their unrepatriated earnings held offshore (on which, under US tax rules, tax is imposed only when the income is brought back to the United States).

Rosenthal suggested that "Congress can ensure the tax on offshore earnings of US companies is deferred, not forgiven. If a US company voluntarily departs (or is acquired by a foreign company in a hostile takeover), we could charge the US company the tax due on its deferred earnings, just as we collect the deferred tax on individual retirement accounts of people who relinquish their US citizenship."

"An exit tax would discourage tax-motivated departures," he added. "Collecting the toll on both voluntary departures and hostile acquisitions would make US companies less attractive takeover targets. And the potential of an exit charge would deter US companies from accumulating earnings off-shore, with a hope of avoiding tax permanently."

He agreed that an "exit tax wouldn't stop inversions or takeovers. Sometimes there are good business reasons for such combinations. But there's no reason why the US tax code should subsidize them."

TAGS: tax | business | corporation tax | multinationals | transfer pricing | United States | tax breaks | exit tax | Tax

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