November/December 2014

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68 CINEMONTAGE / NOV-DEC 14 compiled by Jeff Burman W ith growing frequency, US corporations have announced plans to merge with small foreign firms and reincorporate in that foreign country for tax purposes, which is coming to be known as a corporate inversion, writes Thomas Hungerford for The Economic Policy Institute. Corporate executives argue that the reason for corporate inversions is the anti-competitive US tax environment. For proof, they point to a 39.1 percent US corporate tax rate, the highest corporate tax rate in the developed world. The average statutory rate for 16 other economically advanced countries is 29.6 percent, adds Hungerford. However, defenders of inversions conveniently ignore other features of the tax code that affect how much a corporation actually pays in corporate income taxes, such as deductions, exemptions and tax credits. The effective tax rate — the tax rate that firms actually pay — is lower than the statutory tax rate. Due to loopholes and tax breaks, the average effective US corporate tax rate is 27.7 percent. Not that different from the average of 16 similar, economically advanced countries. US corporations are not inverting because the United States has a high statutory corporate tax rate. They are inverting, says Hungerford, because they do not want to pay taxes they already owe. The $11.5 billion Burger King deal in August to buy the Canadian coffee-and-doughnut chain Tim Hortons and reincorporate in Canada brought these corporate inversions to national attention. In September, the US Treasury Department proposed regulations to curb such inversions. The new rules would take away some of the reasons that a company might want to give up US citizenship, writes Victor Fleischer in The New York Times. However, many proposed inversions are likely to go forward, he adds. This includes the Burger King deal, according to Kevin McCoy in USA Today. 'OBAMACARE' SUBSIDIES RULING VACATED The Washington, DC Circuit Court of Appeals agreed in September to revisit a ruling that struck down the Affordable Care Act (aka Obamacare) subsidies issued through its federal exchange provision, writes Elise Viebeck in The Hill. The announcement is a victory for the Obama administration, which suffered a setback in late July when a three-judge panel threw out the subsidies. The en banc order vacates the judges' July decision, eliminating, at least for the time being, a circuit split in the matter that could have drawn the Supreme Court into the case. An en banc order comes from a session in which a case is heard before all the judges of a court rather than by a panel selected from them. US appellate courts sometimes grant rehearing en banc to reconsider a decision in which the case concerns a matter of exceptional public importance. A decision by the full DC appellate court, in which Democratic appointees outnumber Republicans, could favor the Obama administration. Arguments are scheduled for December 17. The case, Halbig v. Burwell, pertains to whether the health-care law allows the federal exchanges to issue tax subsidies to offset the cost of purchasing insurance, adds Viebeck. LABOR MAT TERS Take the Money and Run!

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