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Experts: Cutting U.S. corporate tax will stop companies from fleeing

Attorney Dolores Laputka of Norris, McLaughlin & Marcus in Allentown said the government needs to address tax reform instead of worrying about businesses relocating their headquarters in a foreign nation.

Attorney Dolores Laputka of Norris, McLaughlin & Marcus in Allentown said the government needs to address tax reform instead of worrying about businesses relocating their headquarters in a foreign nation.

“The Obama administration should really be focused on issues concerning tax reform and not trying to restrict businesses” from attempting to reduce corporate taxes, Laputka said. “What we truly need is a more business-friendly tax reform.”

She is not alone in her assessment that the government’s preoccupation with companies going overseas masks the bigger issue – an outdated United States Tax Code that should have been revamped years ago. The 35 percent corporate tax – higher than most nations – puts American companies at a disadvantage when competing with foreign businesses.

As a result, more U.S. companies are reincorporating overseas to take advantage of the other nation’s lower corporate tax rate. That means they are not taxed at the 35 percent rate for income earned outside the U.S., only for income earned in America.

The flight overseas, called inversion, is a trend expected to grow – unless the government prevents it or makes it less economically attractive for businesses.

The Obama administration is pushing to tighten tax rules to restrict inversion, but others say the quickest way to stop inversion is by reducing the U.S. corporate tax rate. But revising the Tax Code is a broader issue not having much success in Congress because of differences between Republicans and Democrats.

“What the government is trying to do [with inversion], it’s like killing a gnat with a sledgehammer. It is not a good thing. Let’s worry about bringing the U.S. corporate tax down, like all the other countries did,” said Alex Snyder, a tax planning attorney for the law firm of Barley Snyder, which has offices in Reading and Lancaster. “Then, maybe companies won’t establish headquarters overseas.”

According to a recent study by the Congressional Research Service, at least 47 tax inversions by companies have occurred since 2004, an increase from 29 the previous two decades combined.

Recently, there has been a lot of media focus on inversions, as several large pharmaceutical companies announced plans to merge or acquire foreign entities and then relocate. Meanwhile in August, fast food chain Burger King announced plans to buy the Canadian-based Tim Hortons restaurant chain and move its headquarters to Canada.

The buyout is viewed as an inversion strategy, since it will allow Burger King to pay the Canadian corporate tax rate of 15 percent on income vs. the American rate of 35 percent. Burger King would still have to pay the 35 percent rate on income generated in the U.S.

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