| by Victor Cherubim
( July 3, 2014, London, Sri Lanka Guardian) People do different things in different places, particularly when the sun comes out and lift their spirits. This is quite normal. What is common is that there is a lot of shopping and a lot of tourist activity taking place in summer, but an extraordinary type of shopping is being pursued today, called tax shopping.
It is a strategy used by “a growing number of American businesses to move their Corporate Headquarters abroad for tax purposes. It is not considered tax evasion as long as, it is not undertaking activities to hide profits”.
Across the Big Pond, takeover business is booming over recent weeks and months. British companies are much sought after by the Americans. We saw a flurry of activity with Pfizer’s bid for British Pharmaceutical giant, AstraZeneca. Now, struggling high street retailer Mothercare, has become the latest London listed firm to be targeted for a takeover by a US predator, Destination Maternity, wanting to shift its business to the UK.
In the opposite direction, Swiss drugs firm, Roche’s US based biotech company Greentech, has agreed to buy American biotechnology firm Seragon Pharmaceuticals, while German fashion house, Hugo Boss is taking full control of its stores network in China. These two moves has it appears, nothing to do with tax shopping, the former “to redefine the standard of care for hormone receptor cancer treatment” and the latter, it was “a move that mirrors a broader trend by luxury goods groups, like LVH Louis Vuitton and Burberry, in emerging markets, for brand marketing”.
Reasons for takeovers
According to a report, “the land of the free and the home of the brave also has the highest rate of Corporation Tax of any rich world economy”. Corporation Tax in the United States is at 35%, whilst it is only 20% in Great Britain and zero percent in Bermuda.
The process of buying and merging with foreign companies in order to shift U.S. Companies’ tax domicile to a lower tax jurisdiction is very appealing. In recent years Ireland, Netherlands, Bermuda and now Britain, are in the sights of US companies, as more and more US conglomerates and even smaller companies are snapping up businesses in low tax countries to make it their official home.
The other important reason is that profits earned by United States Companies and brought back to the US are also US taxed, so keeping untaxed cash offshore saves US Companies as much as $2 trillion in taxes.
Britain’s economy has shown in recent months that its recovery is gaining traction. Growth in manufacturing output has improved. But, living standards have yet to improve; not withstanding double digit percentage increase in house prices in London. The pound is at an all time high of near £1.72 against the US greenback. People are yet resilient, voting with their feet and moving out of London, ahead of an imminent Bank of England rate rise, to afford quality living outside the City. All this is happening nearly ten months before the General Election, May 2015.
Why not Sri Lankan businesses?
While the world is pushing us to redefine our human values, we can instil our people with a greater sense of national identity, with dignity, self respect and tolerance for all religions and all citizens, thus winning over our critics, to invest in our nation instead.
It is hoped that we try to attract foreign businesses to come and invest in Sri Lanka with tax incentives, like in Britain. This will turn it into a win/win situation for our mutual benefit. It perhaps, is not going to be either easy or a quick recovery, but will gain traction if pursued relentlessly.