Getting a handle on inversion

first_imgIn recent years, a number of U.S.-based corporations with significant international holdings have shifted their headquarters overseas in an attempt to lower their tax bills. At 35 percent, the U.S. nominal corporate tax rate is highest among member nations in the Organization for Economic Cooperation and Development (OECD). The maneuver is known as tax inversion. Officials in the Obama administration have described it as unpatriotic, and are weighing an executive action aimed at limiting the economic benefit. Harvard Business School’s Mihir Desai is an expert on tax policy, international finance, and corporate finance. His work has explored the design of tax policy in a globalized setting, the links between corporate governance and taxation, and the internal capital markets of multinational firms. Desai, the Mizuho Financial Group Professor of Finance, is also a professor at Harvard Law School, and a research associate in the public economics and corporate finance program of the National Bureau of Economic Research.Desai spoke with the Gazette via email about the factors driving the practice of tax inversion, and also provided links to research around the topic.GAZETTE: What is a tax inversion?DESAI: “Simple” inversion involves taking a typical corporate structure and inverting it — a U.S. parent company and its subsidiary in a low-tax jurisdiction switch positions. Such a transaction largely leaves U.S. operations and foreign operations unchanged, but changes the nationality of the parent company. Such transactions can have two tax-related benefits. First, the U.S. employs a worldwide tax system on its citizens and corporations so that income earned globally is subject to tax, after credits for foreign taxes paid, in the U.S. As such, an inversion promises to remove future non-U.S. income from U.S. taxing jurisdiction so that foreign income only faces local taxes. Second, the new transaction may enable corporations to remove income from the U.S. more readily than they did before, via intracompany financings. In a study of the initial wave of these transactions co-authored with Jim Hines, we found that both motives were operative.The more recent spate of these inversions (PDF) is more complex and more substantive. After the enactment of anti-inversion legislation in 2004, corporations must find a foreign partner with an appropriate domicile and merge with them, in the process changing their domicile to the partner’s domicile, in order to access these benefits. Recent transactions have involved some of our largest companies, reflecting the growing incentives to undertake such transactions.GAZETTE: What is spurring the trend in inversions? The New York Times reported that 22 companies have announced an inversion since 2011, why?DESAI: The growing frequency and magnitude of these transactions are a manifestation of the changing incentives facing U.S. corporations. On two critical dimensions, the U.S. corporate tax regime is a significant outlier — we employ a worldwide regime and our statutory rate is amongst the highest in the OECD. In the last five years, our exceptionalism has become more pronounced as the U.K. and Japan switched away from a worldwide system. The U.K. cut their rate by 10 points and the third quiver of Abenomics [economic policies advocated by Japanese prime minister Shinzō Abe] features corporate rate reductions. In short, the rest of the world has moved significantly to lower their rates and moved away from the worldwide regime while we haven’t. Aside from these policy changes, there are secular changes in the nature of global firms which also drive these transactions. For example, non-U.S. markets are more important than ever and firms employ more intellectual property (which can easily be relocated) than before. Finally, corporations have figured out how (PDF) to splinter their headquarter functions across multiple jurisdictions, ensuring that they can have many homes.These transactions are just the most visible manifestation of these underlying changes. Our current corporate tax regime has led to distortions throughout the incorporation, investment, and financing decisions of corporations. First, U.S. corporations have enormous cash balances that are largely overseas (because taxes are only due upon repatriation), locking out funds that could be used for domestic investment. Second, U.S. corporations become targets of mergers that are motivated by relocation incentives, increasing the possibility that higher-wage headquarter jobs are relocated. Third, enormous resources are directed toward non-value-creating tax arbitrage activities. And entrepreneurs and venture capitalists can anticipate the burden of being a U.S. corporation and exercise their flexibility at inception to avoid these consequences.Most importantly, the incentive to invest in the U.S. is reduced. Given that rising wages for American workers is the clear economic priority today, reforming this system to encourage more domestic investment, which makes our workers more productive, is the most important policy priority. While it is tempting to characterize corporate tax reform as a sop to big business, we know that the burden of the corporate tax is borne by shareholders, workers, or customers. And much of the available evidence points to the majority of the burden being borne by workers, a result that is intuitive when one compares the relative mobility of capital, labor, and products. The excellent work done by my colleagues Michael Porter and Jan Rivkin on U.S. competitiveness also highlights how important tax reform is to advancing the desirability of the U.S. as a destination for investment.GAZETTE: How does what companies in developing nations pay in taxes actually compare to what companies pay in the United States? Is it accurate to say that the United States has the world’s highest corporate tax rate?DESAI: The current system is the worst of all worlds — we have a very high statutory rate (the rate faced by the last dollar of profit) by comparison to the OECD and an average rate (the rate reflecting taxes paid relative to income) that is within the norm of the OECD. The high statutory rate leads to perverse income relocation incentives and can distort investment decisions on the margin while we actually collect amounts that are significantly less than promised by those statutory rates. Similarly, we employ a worldwide regime that is byzantine in its complexity, but we actually raise little revenue from it. Other than allowing for dueling political rhetoric that is somewhat grounded in fact — e.g., “U.S. corporations face some of the highest (lowest) rates in the world” — this system has no winners.GAZETTE: President Obama has called companies that use inversion “unpatriotic.” Could you envision a type of backlash against these corporations by U.S. consumers?DESAI: While I share the frustration over these transactions, the use of the term “unpatriotic” always makes me cringe, given its historic use. Jawboning them into staying may well be effective in the short run, particularly for consumer-facing companies. But, it does little for improving the underlying situation more broadly.The political turn that is required is the one that occurred in the U.K., where the departure of several corporations led to significant reform founded on the idea that firms that succeed globally are a source of national economic well-being. Being home to such companies has important economic benefits and, moreover, penalizing their foreign operations is not consistent with the economic facts. In work co-authored with Fritz Foley and Jim Hines, we show that firms expanding abroad also expand domestically, undercutting the common intuition that global expansion by firms comes at the expense of domestic interests. While there will always be examples of harm done to domestic interests, it does not appear to be the case on average, and indeed, one can quickly intuit why working for a globally successful company (or university, for that matter) expands the opportunity set of workers and managers. Domestic headquarters, R&D activity, and export activity can all benefit from firms that are flourishing abroad. So the broader political issue (PDF) is to avoid a new form of protectionism and to embrace the idea that being home to globally successful organizations is a good thing.GAZETTE: Can you foresee reforms to address these issues? What kind of corporate tax reform would be desirable?DESAI: In the very short run, there will be a great temptation to pass legislation that targets these specific transactions by disallowing mergers unless the foreign partner is much larger and/or the resulting merged entity is managed abroad. As I indicated in recent testimony (PDF) to the Senate Finance Committee, such efforts give rise to unintended consequences. By “increasing the bar” on the transactions that will qualify as mergers, such laws — as with the anti-inversion legislation in 2004 — may simply lead to more substantive transactions with consequences that are adverse to American interests.  Additionally, my colleague Steve Shay has suggested there are regulatory actions that one could take without legislation that would help, particularly toward the threat of our tax base eroding.There is a fair amount of consensus about where we should end up, so I’m optimistic that we’re close to significant reform.  It is important to acknowledge that the better long-run solution is a movement to a consumption tax base with progressivity implemented in a variety of ways, à la the Graetz Plan (PDF). Given current political realities, my proposed changes stay within the frame of the current corporate tax and are revenue-neutral.First, switch to a simple territorial regime (where income only faces local taxes) from the current worldwide regime. As described above, the current system is generating little revenue and causing numerous distortions. Moreover, taxing only profits earned within one’s borders, rather than globally, has a sound theoretical justification. Worldwide regimes with credits for foreign taxes paid were historically motivated by the intuition that foreign direct investment involves one-for-one substitution between domestic and foreign destinations and that productivity differences across firms don’t exist. Under these conditions, a worldwide regime ensures that investment is only guided by pretax factors. In fact, several decades of scholarship on multinational firms has highlighted that heterogeneity in firm productivity is central and the research mentioned above suggests that foreign and domestic activity can be complementary. With these conditions, it becomes much more desirable that tax systems leave the identity of owners unchanged to ensure that the most productive firms flourish, a result ensured if local taxes are the only taxes faced by firms.  Efforts to incorporate alternative minimum taxes within territorial regimes should be avoided as they are effectively backdoors to a worldwide system.Second, drop the corporate rate to 16 to 18 percent to ensure that we are within the norm of OECD rates for the foreseeable future. Such a reduction will sharply limit unproductive profit relocation activity motivated by large statutory rate differences. Of course, these first two changes will cost us tax revenue. The corporate tax is not a great tax relative to other fiscal tools, but I still think it’s important to fund these changes within the context of business income. Two additional changes will accomplish that in a productive way.Third, corporations that pay the corporate tax (so-called C-Corps) now represent less than half of all business income, down from over 80 percent in the late 1980s. There has been tremendous growth in pass-through entities as legal and financial engineers have figured out ways a) to shoehorn partnerships into the requirements for publicly listed companies and b) to divide corporate income into operating income and property income to avail themselves of pass-through entities. As a result, corporate taxes are increasingly paid only by publicly listed multinational companies and there is a large untaxed business base. Charging a relative modest tax on these entities would level the playing field across organizational forms and raise considerable revenue.Fourth, aligning the way firms report profits to capital markets and tax authorities would both raise considerable revenue and restore credibility to the corporate tax system. We have a parallel universe for reporting profits to tax authorities which, unsurprisingly, means that it is not uncommon for some of our best-known firms to routinely report large profits to capital markets while reporting limited profitability to tax authorities. Ultimately, the economic position of shareholders and tax authorities are the same — they are claimants on pretax corporate profits. Ensuring a relatively common notion of profits that piggybacks on the considerable advances made by the accounting profession will raise revenue and make it less likely that corporations are seen to be paying limited taxes while reporting considerable profits to shareholders.As I said, I’m optimistic — these inversion transactions will hopefully highlight just how broken things are and that’s the first step in getting to a better system.last_img read more

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The Economic Case for Solar, Not the Climate-Change Case, Is Driving Its Uptake Across the Southern U.S.

first_imgThe Economic Case for Solar, Not the Climate-Change Case, Is Driving Its Uptake Across the Southern U.S. FacebookTwitterLinkedInEmailPrint分享InsideClimate News:When Brandon Presley was elected to the Mississippi Public Service Commission in 2007, he said, he couldn’t have found a solar farm “with a SWAT team and a search warrant.”A decade later, Mississippi is one of the fastest-growing solar markets in the United States, according to GTM Research. The state’s public service commission approved several solar projects this summer, and the state is expected to gain more than 700 megawatts of solar capacity over the next five years.One of the its newest projects is a 52-megawatt solar farm near Hattiesburg. A partnership between Mississippi Power, the state’s largest utility, and Silicon Ranch, a solar energy company based in Nashville, Tennessee, the 450-acre solar farm will eventually power 6,500 homes.“I think everybody wants to be more energy independent, and that’s part of the public buzz around the solar industry in our state,” Presley said.Combined, the Southern states would equal the sixth-largest greenhouse gas-emitting country in the world, said Michael Vandenbergh, a law professor at Vanderbilt University. But that argument doesn’t resonate in many conservative areas. “People associate climate mitigation with big government, and that’s particularly true in the South,” he said.What is resonating with utility companies like Mississippi Power and communities like Hattiesburg is the economic argument for cheaper solar power.Despite the lack of renewable-energy-friendly policies and the reluctance from Republican-led state legislatures to address climate change, states across the South and Appalachia―regions that voted heavily for Donald Trump―are rapidly expanding their solar markets.Most of that growth has come from utilities investing in large-scale solar projects, which have dropped in price by nearly 80 percent since 2010 to 6 cents per kilowatt-hour, making them more cost-competitive with coal and natural gas. There’s also a grassroots rooftop solar movement in coal-friendly communities, encouraged by cheap technology and a push for energy independence.To get communities, investors and utilities on board, renewable energy companies like Silicon Ranch have focused on the economic benefits of clean energy, rather than climate science or environmental regulations.“Climate change is never coming up in any development activity [conversations],” said Matt Beasley, chief marketing officer of Silicon Ranch. “It’s not a talking point―it’s always about economics.”When Silicon Ranch was founded in 2011, the idea that a national solar energy company could survive and thrive in Nashville, while the rest of the industry was based in California and the Southwest, “was unimaginable,” Beasley said. But the young team focused its efforts in the sunny Southeast, states with plenty of solar power potential.Since then, utilities around the country have closed an increasing number of aging coal-fired generators, and wind and solar have become the fastest-growing sources of electricity in the U.S. It’s partly due to tax credits for clean energy industries that Congress extended in 2015, which are supposed to phase out in the 2020s. Rural states also got help from an Obama-era Department of Agriculture program called the Rural Energy for America Program, which gave more than $280 million in funding for rural solar projects in 2015 and 2016.More: 2 Reasons Solar Is Booming in Trump Country: Price and Energy Independencelast_img read more

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Brazil and Argentina Create Bilateral Organization for Cyber Defense Cooperation

first_imgBy Dialogo September 19, 2013 Conversations about closer cooperation in the cyber arena took place during a two-day official visit by Brazilian Minister of Defense Celso Amorim and his team to Argentina on September 12, as guests of his Argentine counterpart Agustín Rossi. During the meeting, the ministers stated their support to multilateral cooperation initiatives among member countries of UNASUR’s South American Defense Council. Brazil and Argentina announced the creation of a bilateral organization aimed at analyzing cyber defense cooperation actions. The neighboring country will send a team of civilian and military specialists to Brazil in November, in order to learn about the activities and projects conducted by the Brazilian Army’s Cyber Defense Center. An interest of expanding scientific cooperation between the countries that share Antarctic territory was also discussed, as well as the idea to create a South American Defense School, with different initiatives in the field of defense that are applied in regional countries. center_img The Brazilian Minister visited the Argentine Naval Industrial Complex (CINAR), and he also met the Argentine Minister of Foreign Affairs Héctor Timerman. The Brazilian Ambassador in Buenos Aires, Everton Vargas, and his team, supported the official visit. The head of Brazil’s Cyber Defense Center, General José Carlos dos Santos, was also a part of Amorim’s team in Buenos Aires.last_img read more

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Core is more: Innovation key to enhanced consumer experiences

first_img 15SHARESShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblr Digital experiences are now woven into the fabric of our lives, including how we communicate, shop, travel and manage money. As consumers, we expect every interaction to be convenient, intuitive and easy. Because of these high expectations, businesses that create highly personalized, flexible customer experiences will stand out. In financial services, this requires an IT strategy and capabilities that are as agile and mobile as your customers.Keeping up with your customers and staying ahead of the competition means riding this digital wave. The pace isn’t slowing down. Financial institutions are tasked with responding to market trends faster, offering new products and delivering excellent service – continuously – to meet the accelerating pace of consumer expectations.Core banking technology is a key enabler of any financial institution’s strategy in this environment. For some time, we’ve been looking at the market differently because today’s reality makes core banking even more relevant and important. It’s more than just core – it’s the central connection point for introducing innovations both internally and to customers. Our commitment and investments in each of our core platforms are designed to strengthen value for clients, turning them into platforms for faster, less disruptive innovation through integration as part of larger enabling framework. continue reading »last_img read more

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The Wedding Garment

first_img Share 34 Views   no discussions Sharing is caring! FaithLifestyleLocalNews The Wedding Garment by: – October 8, 2011 Sharecenter_img Share Tweet Image via: gbcdecatur.orgWhen I was a young fellow, there was a priest in Port of Spain who achieved a certain notoriety because of what he used to do at weddings. If a bride came to church with her shoulders and upper torso practically exposed, he would go to the sacristy, get an old jacket and throw it over her shoulders, before he proceeded with the ceremony. Before long, brides at that Church came completely covered from head to toe.It was a case of one exaggeration being met with another, but the practice of that priest often comes to mind whenever I read today’s Gospel. The poor man who came not badly but inappropriately dressed got summarily kicked out of the wedding. He was wearing the wrong clothes. I say “wrong clothes,” not to suggest casual wear when formal was required. In the days of the gospel, quests were provided with a wedding garment, much as we robe infants at baptism today with a symbolic garment to signify their new status. In a similar way, guests had to put on the wedding garment provided by the host over whatever clothes they arrived with. One result of that was that weddings could not become fashion shows. Everybody wore the same thing.Jesus, of course, is not really talking of befitting wear for weddings. In the traditional Israelite understanding, which he shared, the wedding feast was a symbol of the joyful union with God in at the end of time. The garment here is not the level of finery you could afford but what qualities you should come clothed in, if you wished to share in the feast and be part of the Lord’s company.The Bible does not focus specifically on moral requirements for enjoying the feast. The New Testament sets out in a variety of different ways different habits and values of Christian living. Every letter of St. Paul, for instance, has a section devoted to this purpose. One value that gets special mention is perseverance. Jesus devoted two parables to the idea: a man getting ready for bed, disturbed by a friend pounding at his door, looking for a few loaves to host an untimely visitor; and the woman who pesters the unjust judge to give her justice and doesn’t cease petering until she gets it.In a famous section of his letter, the author of Hebrews counselled his hearers who were growing tired and were tempted to give up: “What a cloud of innumerable witnesses surround us! So let us be rid of every encumbrance… Lift up your drooping hands and strengthen your trembling knees” and keep running the race till the end (12: 1, 12). Faith was a marathon not a sprint. It was a metaphor New Testament writers particularly liked.St. Matthew is the evangelist who gives the most deliberate attention to being accepted or rejected at the end, in his scene of the Last Judgement in chapter 25. The principal feature of this scene is the element of surprise. Both groups, the just and the unjust, hear something completely unexpected. The just are told first that when they fed the hungry, gave drink to the thirsty, welcomed the stranger, clothed the naked, and visited the sick and imprisoned, they were in fact encountering and serving the Lord. This is a surprise, because all they saw when they were so engaged were people who were hungry, thirty, sick, naked, and imprisoned. They are told that all the while the one in need they were helping was the Lord incognito.The unjust get a surprise in the other direction. When they are told who they were neglecting in the different persons in need they bypassed, we can imagine what their reaction must have been Lord, had we known that people like that were actually you, how could we possibly have passed you by?But they did. And we do it still, because the faces of human need remain all too human. There’s nothing divine about any of them. We tend therefore to see only what our eyes disclose. And all the while the Lord is there waiting to be met.By: Father Henry Charles, Ph.dlast_img read more

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