FocusUS tax reform plan dents corporate competitiveness – E&Y

08 May 2009 08:09  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)--US business operating costs would spike if the government’s proposed tax reform is adopted, dealing a blow on the overall competitiveness of American companies, said a partner at global auditing firm Ernst & Young (E&Y) on Friday.

Obama’s tax reform proposes to slap taxes on overseas income of American companies whether or not the funds are repatriated back to the US.

Based on estimates by the American Chemistry Council, the reform could potentially increase the tax burden of industrial chemical manufacturers by 38% and of energy companies by up to 50%.

US companies may shy away from overseas expansion plans and even stop some existing operations abroad, said E&Y's Andy Baik.

“Businesses would be forced to rethink supply chains, countries of operation and other fundamental operating questions,” said Baik.

“Based on these assessments, serious discussions are likely to take place on certain retractions of overseas operations, especially with regard to new investments the company is looking to make,” the E&Y executive said.

The proposed tax reform would also be a step back while the rest of the world was charging ahead with tax cuts and could affect the US firms’ competitiveness, he said.

“In recent years, many countries around the world have been lowering their corporate tax rates, so that the US corporate tax rate is now the second highest among the Organisation for Economic Co-operation and Development (OECD) countries,” Baik said, adding that the plan would most probably face stiff opposition.

OECD comprises the industrialized economies such as Germany, UK, France, Japan and Korea.

The chief of global chemicals and energy giant ExxonMobil had called for a dialogue with the Obama administration on the proposed tax amendment in an interview with ICIS news in Shanghai.

ExxonMobil’s largest refinery as well as other petrochemical units are located in Singapore and are operated through its wholly owned subsidiary ExxonMobil Asia Pacific Pte Ltd, which has assets of more than $7bn.

Other US-based chemical companies such as Dow Chemicals, DuPont and Procter and Gamble also have very extensive global presence and could have their tax bill significantly inflated if the proposal were to be enacted into law.

The US is the only country among those housing a significant number of multi-national companies that has a corporate tax rate of more than 30%, said Baik.

“Many are stressing that the US tax code is already less competitive than those of other industrialized countries, and these proposals would further limit competitiveness by imposing a de facto tax increase on US businesses,” Baik said.

The city-state of Singapore has a low corporate tax rate of 17% while Hong Kong, a special administrative region of China, applies a 16.5% corporate tax. Countries would normally bring down corporate taxes in a bid to attract foreign direct investments.

With additional reporting by Joe Kamallick

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By: Bohan Loh
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