U.S. Companies Are Moving to Europe to Get Away from Our Awful Corporate Tax Policies

COMMENTARY Taxes

U.S. Companies Are Moving to Europe to Get Away from Our Awful Corporate Tax Policies

May 8, 2014 1 min read
COMMENTARY BY

Research Fellow, Tax and Economic Policy

Curtis Dubay, recognized as a leading expert on taxation issues, is a former research fellow in tax and economic policy.

I hate to say I told you so, but . . .

A few months ago I warned that if Congress didn’t lower corporate taxes, U.S. businesses would start moving their headquarters abroad.

Lo and behold, two major U.S. businesses now are looking to pack their bags for Europe.

Pfizer is trying to acquire AstraZeneca, a U.K.-based pharmaceutical company. If it does, the newly merged company will be based in the U.K.

Walgreens, the pharmacy and convenience-store chain, bought a similar company in Switzerland, and now its shareholders are putting intense pressure on it to move its headquarters there.

These well-known U.S. businesses are looking to pull up stakes because the U.S. taxes their foreign earnings at the highest rate in the industrialized world. Indeed, we are the only country that taxes the foreign earnings of our businesses.

By moving abroad, Pfizer and Walgreens could shed billions in taxes on foreign earnings – earnings that never would’ve been taxed to begin with if we had a territorial tax system like the rest of the developed world.

Last year, in a paper detailing the huge economic benefits of switching to a territorial system, I noted the following:

The worldwide system only applies to businesses headquartered in the U.S. If a U.S. business moves its headquarters abroad, it would still owe tax on income earned in the U.S., but moving its headquarters to another country would avoid the extra tax on foreign income. The U.S. has strong anti-inversion rules that make it difficult for a business headquartered in the U.S. to move its headquarters to another country, but little prevents U.S. businesses from selling themselves to foreign-owned businesses.

Pfizer and Walgreens didn’t sell themselves to foreign businesses, but buying foreign businesses and re-domiciling the new merged business is effectively the same thing.

In the same paper, I explained what’s at stake:

When a business moves its headquarters to another country, it takes high-quality jobs with it and leaves a palpable absence in the communities it once inhabited. Businesses often become synonymous with the cities in which they are founded and grow…

New York City (Pfizer’s headquarters) and Springfield, Ill., (Walgreens’ headquarters) are about to feel these losses. Congress needs to act soon to fix the corporate tax code, or other cities will join the list.

 - Curtis Dubay is a Heritage Foundation research fellow, specializing in tax and economic policy issues.

Originally appeared in the National Review Online