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For many corporations in the US, having to pay the high corporate tax rate is a problem worth avoiding. In order for these companies to avoid having to pay these taxes, they are reporting profits under the holdings of offshore subsidiaries. There is a lot of speculation that if companies could bring the money back over to the US, it would stimulate the economy and help the United States. In order for this to become reality though, the current tax rate would have to be much lower. There is in fact some myth to this. In order for the money to be considered "offshore" on the financial statements, the money simply has to be under a foreign subsidiary, even if it is invested in a bank in the US like a lot of companies' profit currently is. This allows them to avoid having to pay the US corporate tax rate on their offshore profits, while still having the money accessible in the US.
This tax break for companies is valuable to the large multinational corporations that are able to take advantage of it. Companies have countered by reporting more and more income on the books of their foreign subsidiaries. Some of this foreign income comes from real offshore activity, but a growing portion comes from complicated, arguably abusive, tax-avoidance schemes. Now a well known United States company, Pfizer has started thinking of ways to obtain this tax-avoidance. The company is in the process of trying to purchase the British company AstraZeneca. This purchase could lead to Pfizer having tax savings around $1 billion per year. Pfizer, being the most well known and largest company that has made this planning so public, is causing a lot of other large corporations to start taking action quickly before legislation can change laws restricting these measures.
If Pfizer is successful it could be the leader and the first of many more multinational corporations in the US to merge with foreign companies for tax benefits. This is a big game changer for global business and will in the end lead to the combination of many global companies into one larger global company. Leave a comment about what you think will happen in the US and other counties as more companies start to take advantage of this opportunity. Also check out other globalEDGE blogs on companies and country taxes here.
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