Burger King Deal: Start Of American Capital Flight Storm?

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Days after the controversial Burger King Worldwide Inc (NYSE:BKW) tax deal was announced, the chief executive of one of the world’s largest independent financial advisory organizations warns that 2015 could be the year that the U.S. economy is defined by increasing capital flight.

America’s developing capital flight storm

2015 could be the year that the U.S. economy is defined by increasing capital flight, warns the chief executive of one of the world’s largest independent financial advisory organizations.

The prediction from deVere Group’s founder and CEO, Nigel Green, comes as the firm’s consultants report that 55 per cent of U.S clients who companies have in recent times inquired about shifting the registered business headquarters overseas.

Mr Green observes: “Over the last six months, more than half of our U.S.-based, business-owning clients have actively sought advice on the implications of moving their business headquarters out of the U.S. for tax purposes.

“Shifting headquarters overseas is no longer a phenomenon that is exclusively attracting the attention of large multinational corporations.  More and more SMEs are also now considering the option.

Capital flight: Rise in tax inversions

“The inquiries on this issue have surged in recent months.  I suspect this is due to top level political debate and media coverage regarding a number of high profile ‘inversion’ cases.  This has fuelled growing awareness amongst U.S. business owners about how reincorporating in lower tax jurisdictions can considerably reduce annual tax liabilities.”

Recently published research by The Tax Foundation finds that America’s top business tax rate – 35 per cent – is the highest amongst the 34 industrialized nations of the Organization for Economic Cooperation and Development (OECD).

In addition, since 2000 all but three OECD countries – the U.S., Chile and Hungary – have reduced their corporation tax rate.

To compare one example, the UK already has a corporation tax rate of 21 per cent and it is lowering it further, to 20 per cent, in 2015.  It will become the joint lowest in the G20.

The deVere Group CEO says: “It is clear that unless America cuts its high business tax rate, it will struggle to maintain its competitive edge and remain attractive for investment.  As such, companies, especially those with overseas earnings, will increasingly consider moving their registered address outside the U.S.

“As the Laffer Curve demonstrates, there comes a point when raising taxation becomes counterproductive for raising revenue.

Capital flight: Tax burden

“Economic history teaches us, and our experience shows, that when companies and/or individuals become ‘taxed-out’, many of those with the resources to do so will fiscally relocate elsewhere to mitigate their tax burden.

“Due to the heightened awareness amongst savvy U.S. business owners of the available options to them and the seemingly growing intolerance of America’s relatively high tax rates within the business community, I predict capital flight could become a real issue from 2015.  This is a problem the United States could easily avoid and should not risk.”

Mr Green concludes: “Rather than threatening to use controversial presidential powers to prevent U.S. companies legally reducing their tax burden, Mr Obama should instead be pushing to bring America’s tax code in line with the rest of the world’s developed economies, thereby instantly making the U.S more attractive, more competitive and more pro-business.

“Most American companies do want to remain headquartered in America, but the tax situation is making it tough to justify doing so.”

About deVere Group

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of 70 offices across the world, more than 1,200 staff, over 80,000 clients and $10bn under advisement.


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