US Economy
President Obama cites Ireland and US tax inversions
By Michael Hennigan, Finfacts founder and editor
Jul 25, 2014 - 3:07 AM

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President Barack Obama greets a man who told the President he had voted for him, at Canter's Delicatessen in Los Angeles, California, July 24, 2014.

Barack Obama on Thursday in Los Angeles attacked US firms for using so-called tax inversions where they move their address/ tax residency to countries like Ireland which he called "cherry-picking the rules" and damaging the country's finances and the economy. In a CNBC interview the president cited Ireland by name.

Obama said that these companies, which buy foreign firms to technically change their tax domicile to a country with a lower tax rate, benefit from America's university system and infrastructure, but then turn around and "game the system." He told CNBC that despite the legality of this corporate practice, inversions are not fair.

"You are an American company. You continue to benefit in all kinds of ways from being an American company," the president said on CNBC. "It is true that there are a lot of things that may be legal that probably aren't the right thing to do by the country."

"There are a whole range of benefits that have helped to build companies, create value, create profits," he added. "For you to continue to benefit from that entire architecture that helps you thrive, but move your technical address simply to avoid paying taxes, is neither fair, nor is it something that's going to be good for the country over the long term."

Obama also said that "now is the time" for his administration to tackle corporate tax reform.

“What we are trying to do is to say that if you simply acquire a small company in Ireland or some other country to take advantage of the low tax rate [and] you start saying, ‘we are now magically an Irish company’, despite the fact that you might have only 100 employees there and you have got 10,000 employees in the United States, you are just gaming the system,” he said. “You are an American company.”

Finfacts: US-Ireland Tax Inversions 600,000+ staff: Kenny, Noonan met with top US corporate lawyers

The White House says that [a corporate "inversion" is what happens when a US-based multinational with operations in other countries restructures itself so that the US "parent" is replaced by a foreign corporation - - and usually one that's in a country with a lower tax rate than the United States. As a result, on the whole, this means that corporate income tax that would otherwise be paid to the United States ends up going overseas.

In other words, right now, the tax code allows any American company to merge with a foreign company (so long as that company’s shareholders own 20% of the combined firm) - - and then “relocate” or “invert” to another country for tax purposes. This maneuver - - which changes nothing about the actual operations that continue in the US - - allows companies to dramatically reduce the taxes they owe in the US by taking advantage of loopholes in our tax system.]

Earlier this year the Administration urged Congress to raise the 20% limit to 50% but Republicans say that they would prefer to have comprehensive tax reform rather than individual amendments.

See full CNBC interview


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