Stage 7 Expanded Reading
In this stage you are expected to broaden your horizon into the topic of the lecture.Please read the following article carefully.
Capital Flight:Can Tax Inversions Be Prevented?
At the Morgan Stanley Global Healthcare Conference on September 9,2014,Merck CEO Ken Frazier told investors he wouldn’t join the giant wave of companies pursuing overseas acquisitions so they can move abroad and escape high U.S.corporate taxes.Such deals,known as“tax inversions,”go against Merck’s policy of only making purchases that give the company“quality commercial access and quality scientific access,”Frazier said.“We don’t see that the advantages that we would get from a tax inversion deal would…be durable long-term because I think the U.S.government will do something positive or negative in response to the flight of capital,”he added.
That’s quite a bold prediction,though it’s certainly true that legislators in Washington,D.C.,are up in arms over all the recent cross-border deals.The pharmaceutical industry has been particularly merger—happy,with Illinois-based AbbVie buying Shire,for example,Michigan-based Perrigo picking up Elan,and Actavis of New Jersey swallowing up Warner Chilcott.All three takeover targets are Irish.And although Pfizer failed to complete its $118 billion bid to buy British drug giant AstraZeneca,many analysts are predicting it will try again,raising the prospect that what was once a proud New York company may someday be based in London.
Why the rush out of the U.S.?In the simplest terms,says Wharton professor of business economics and public policy Kent Smetters,the overall U.S.corporate income tax rate—the combination of the federal 35% rate and the average tax levied by individual states—is 39%.That’s the highest corporate tax rate among countries in the Organization for Economic Co-operation and Development(OECD)and vastly above the average OECD tax rate of 26%.What’s more,the U.S.follows a“worldwide”system of taxation,meaning it slaps those sky-high taxes on all American firms regardless of where they’re earning the money.
U.S.-based companies not only pay taxes here,they’re also required to pay taxes to foreign countries on any earnings they make in those countries.Even though the U.S.awards credits for foreign taxes paid,American companies are still disadvantaged,Smetters contends.“U.S.firms…face a higher tax rate than their competitors when they invest in intermediary production in other countries.The toxic combination also creates the incentive of U.S.firms to defer the reporting of foreign subsidiary earnings back to the parent U.S.firm,”he says.
Although drug companies aren’t the only ones pursuing tax inversions—witness Burger King’s planned $11 billion buyout of Canadian donut chain Tim Horton’s—the advantages of such deals to Big Pharma are clear.“The pharmaceutical industry has traditionally been a much higher profitmargin industry than others,so they have more tax advantages to gain”by doing inversions,says Wharton health care management professor Mark V.Pauly.“And the companies can better incur the cost of an inversion than companies in other industries can.”He adds that the increasing globalization of the pharma industry only boosts the incentives for drug companies to move offshore.
In February,House Ways and Means Committee chairman Dave Camp released a comprehensive tax reform plan proposing a shift to a territorial system.As part of the plan,Camp proposed that any past foreign earnings held overseas be repatriated and taxed,just one time,at 8.75%.Non-cash earnings held abroad would be taxed at 3.75%.Then,in the future,most foreign income earned by U.S.companies would be exempt from domestic taxes.The top federal corporate tax rate would be lowered to 25%.As for the government’s lost revenue,it would replace it in various ways,such as requiring companies to deduct research and development costs over five years,rather than all at once.
The last big wave of tax inversions occurred prior to 2004,when the government passed the American Jobs Creation Act,which imposed stiff penalties on companies that moved overseas in search of lower taxes.“Prior to that,we mostly just saw companies going to the Cayman Islands and Bermuda—basically tax shelters,”says Wharton accounting professor Stephanie Sikes.“Now they have to have more of a business purpose,so they’re finding other synergies in the companies they’re acquiring.”
In late August,medical device giant Medtronic—which is buying Ireland’s Covidien for $43 billion—disclosed that it plans to reimburse its CEO,Omar Ishrak,for a $24.8 million tax bill he will incur for doing the inversion.The tax emanates from a 2004 Congressional action requiring that a 15 percent tax be imposed on stock and option awards given to officials of companies that undertake inversions.The tax was designed to discourage inversions,but responses such as Medtronic’s show these types of Band-Aids rarely work,says Wharton accounting professor Jennifer Blouin.
Blouin is also skeptical about a recent proposal by Senate Finance Committee chairman Ron Wyden,who suggests that no inversion should be considered legal unless the foreign company owns 50% of the U.S.company’s stock.The ownership stake required currently for such deals to be cleared is 20%.“If AstraZeneca and Pfizer want to join,how would the U.S.government be able to put the kibosh on that?I think these proposals are going to be a tough sell,”Blouin says.
There is one proposal that Blouin says might have teeth,which would involve limiting the interest deductions that companies can take.“Part of the issue with inversion is that Pfizer still sells lots of drugs in the United States,and it pays taxes in the United States.But once you get a foreign company on top,what it can do is allow you to push down as much of your interest expense in the worldwide organization to the United States as possible,”a practice known as“earnings stripping,”she explains.
On September 8,Senator Charles Schumer introduced a plan to reduce the amount of interest inverted companies can deduct to 25%.What’s more,he wants to apply it to any inversion that’s happened since April of 1994.“That would get any U.S.company that’s stripping earnings,but also U.S.affiliates of foreign companies that are doing the same thing.I don’t think trying to apply it retroactively is going to work,but it will mitigate some benefits by at least preserving the tax base in the United States,”Blouin says.
Whether anyone in Washington will actually succeed at halting the run of tax inversions remains to be seen,but one fact is certain:Without such limits,many more companies could very well look seriously at how they might acquire a foreign address.The multiple layers of taxes imposed by the U.S.government on companies“gets more and more troublesome the more the capital market becomes global,”Pauly says.“Capital and labor and management can flow all over the world,so I’m actually amazed that so many American companies are still here.”
(Source:http://knowledge.wharton.upenn.edu/article/can-tax-inversions-be-prevented/)
Task 1:Reading Comprehension Questions
The following questions are asked based on the above article.Please go back to the article and find the answers.
1.What does“tax inversion”mean?Why do companies engage in tax inversions?
2.What kind of taxation system is implemented in the United States?
3.Why are US companies still at a disadvantage in spite of the credits received for foreign taxes paid?
4.Why are pharmaceutical companies particularly interested in tax inversions?
5.What would happen to US multinational companies under the territorial system proposed by Dave Camp?
6.What changes have been seen in tax inversions before and after 2004?
7.What does Medtronic’s reimbursement of its CEO in the acquisition of Codivien suggest?
8.What does“earnings stripping”mean?
9.Does Jennifer Blouin agree to Senator Charles Schumer’s proposal?Why or why not?
10.Why does Mark V.Pauly say he is“amazed”?
Task 2:Paraphrasing
Explain in English the underlined words and expressions in the context of the above article.
1.That’s quite a bold prediction,though it’s certainly true that legislators in Washington,D.C.,are up in arms over all the recent cross-border deals.
2.The U.S.follows a“worldwide”system of taxation,meaning it slaps those sky-high taxes on all American firms regardless of where they’re earning the money.
3.Even though the U.S.awards credits for foreign taxes paid,American companies are still disadvantaged,Smetters contends.
4.The toxic combination also creates the incentive of U.S.firms to defer the reporting of foreign subsidiary earnings back to the parent U.S.firm.
5.The pharmaceutical industry has traditionally been a much higher profit-margin industry than others,so they have more tax advantages to gain by doing inversions.
6.In February,House Ways and Means Committee chairman Dave Camp released a comprehensive tax reform plan proposing a shift to a territorial system.As part of the plan,Camp proposed that any past foreign earnings held overseas be repatriated and taxed,just one time,at 8.75%.
7.Medtronic disclosed that it plans to reimburse its CEO for a $24.8 million tax bill he will incur for doing the inversion.The tax emanates from a 2004 Congressional action requiring that a 15 percent tax be imposed on stock and option awards given to officials of companies that undertake inversions.
8.If AstraZeneca and Pfizer want to join,how would the U.S.government be able to put the kibosh on that?I think these proposals are going to be a tough sell.
9.There is one proposal that Blouin says might have teeth,which would involve limiting the interest deductions that companies can take.
10.That would get any U.S.company that’s stripping earnings,but also U.S.affiliates of foreign companies that are doing the same thing.I don’t think trying to apply it retroactively is going to work,but it will mitigate some benefits by at least preserving the tax base in the United States.
Task 3:Translation
Read the article again and translate it into Chinese.
阅读文章参考译文：
资本外逃：税负倒置能否遏制？
2014年9月9日，召开了摩根斯丹利全球医疗保健大会。会上，默克公司首席执行官肯·弗雷泽向投资者表示，对于近期美国企业为逃避国内高额税负，纷纷并购海外企业、将总部外迁的做法，默克公司不会跟风。弗雷泽指出，这种被称为“税负倒置”的行为，有背于默克公司的政策，即并购的唯一理由就是能给公司带来“高质量的商业渠道与高质量的科研渠道”。弗雷泽还说：“我们并不认为，通过税负倒置带来的优势能够……长久持续。我认为美国政府一定会针对资本外逃行为，采取正面或负面的措施。”
这一预言颇为大胆，尽管华府官员确实对近期所有的跨境并购案如临大敌。制药企业一直都很热衷于并购，例如伊利诺斯州的雅培生命公司收购了夏尔制药公司、密歇根州的百利高收购了伊兰，以及新泽西州的阿特维斯吞并了华纳齐尔考特。这三起收购的对象都是爱尔兰企业。近期，辉瑞公司虽然试图以1 180亿美元收购英国药业巨头阿斯特拉捷利康，但并购企图流产。很多分析人士认为，他们一定会再次尝试，并纷纷预言，这家曾经令纽约骄傲的公司有朝一日或许会易主伦敦。
为什么这些企业心急火燎地逃离美国？沃顿商学院商业经济学及公共政策学教授肯特·斯麦特尔斯一言以蔽之：美国的公司所得税率，即35%的联邦税加上各州的平均税率，已经高达39%。这在经济合作与发展组织国家中位居第一，也远高于经合组织国家平均26%的水平。此外，美国还遵循“全球”征税制，即美国的企业无论在哪里获得利润，都必须在美国承担高课税。
美国企业不仅要向本国政府缴税，只要他们在国外有盈利，还要向外国政府纳税。斯麦特尔斯认为，虽然美国政府针对海外盈利纳税给予奖励，但美国企业仍然处于劣势。他说：“当美国企业在别国投资中间产品时，……［它们要］比竞争对手面临更高的税率。这种情况促使海外的子公司迟迟不愿向美国母公司如实上报海外获利。”
汉堡王计划斥资110亿美元，收购加拿大甜甜圈连锁品牌蒂姆·霍顿，从类似的案例可以看出，制药企业并不是唯一热衷于税负倒置的公司，但是，大型医药企业在这类并购交易中享有的优势依然显而易见。“长期以来，制药行业的利润率相比于其他行业高出很多，因此［税负倒置带来的］好处就更为明显。”沃顿商学院医疗管理学教授马克·V.保利说。“而且，制药企业对税负倒置成本的控制能力，也优于其他行业的企业。”他还说，制药产业日益全球化只会促使更多医药公司转移海外。
二月份，众议院筹款委员会主席戴夫·坎普提交了一份综合税改计划，建议美国采用发生地纳税制。坎普建议，作为计划的一部分，任何以往的海外利润应该调回并按照8.75%的税率一次性征税。在国外的非现金收入则可以按照3.75%来征税。将来，美国的企业绝大部分海外利润都可以免征国内税。联邦企业税的最高税率将降至25%。至于政府因此损失的收入，将以各种方式进行补偿，例如要求企业分五年扣减研发成本，而不是一次性全部扣缴。
上一次大规模的税负倒置发生在2004年之前。当时，政府通过《美国就业机会创造法》，严厉惩罚为了降低税率而迁址海外的企业。“在此之前，我们最常见的是，企业迁至开曼群岛和百慕大，这些基本上都属于避税港，”沃顿商学院会计学教授斯蒂芬妮·赛克斯说，“而现在，企业必须要有更好的商业理由［这样做］，因此，他们在并购时会更加关注其他的协同优势。”
八月下旬，医疗器械巨头美敦力公司透露，公司计划为公司首席执行官奥马尔·伊史拉克提供补贴。这是因为美敦力即将以430亿美元收购爱尔兰柯惠医疗公司，而倒置操作使他产生的纳税额将达到2 480万美元。这笔税额的征收源于2004年美国国会的一项决议，要求向因所在公司倒置重组而获得股票和期权奖励的高管征收15%的所得税。
这项规定旨在打击税负倒置行为。然而，沃顿商学院会计学教授詹妮弗·布劳因却表示，美敦力等公司的应对之策说明，这种治标不治本的做法收效甚微。
布劳因说，她对参议院金融委员会主席罗恩·怀登近期提出的建议也表示怀疑。怀登建议，除非外国企业在美国公司参股50%，否则任何税负倒置都是非法的。目前，进行这类操作的参股下限为20%。布劳因指出：“如果阿斯特拉捷利康与辉瑞希望合并，美国政府如何阻止这件事情的发生？我认为这类提案很难获得通过。”
不过，布劳因认为有一个提案或许有些杀伤力，那就是限制企业对利息支出的扣除。她解释说：“倒置重组的问题是，辉瑞在美国市场仍然销售大量药品，因此需要在美国缴税。但一旦你的母公司变成了外国企业，那就可以压低世界各地的利息支出，尽可能多的转移到美国去。”这种做法就是所谓的“盈利剥离”。
九月八日，参议员查尔斯·舒默提交了一份计划，希望将税负倒置公司获得的利率优惠幅度降低至25%。而且，他还希望这一规定能够适用于1994年4月以后发生的所有倒置收购行为。布劳因说：“这样一来不仅牵扯到所有盈利剥离的美国企业，而且还影响到在做同样事情的外国企业的美国子公司。我认为这样追溯适用的做法不会奏效，但是，至少通过保住美国国内税基，应该会减少企业获利的幅度。”
对于华府是否有人真的能够成功阻止税负倒置的浪潮，仍然有待观察。但有一事实确定无疑，那就是如果对税负倒置不加以限制，将会有更多的公司认真考虑如何迁址海外。保利认为，美国政府对企业的层层征税，“随着资本市场全球化的程度越高，［这一问题］会变得越来越棘手。”“既然资本、劳动力以及管理层都可以在全球自由流动，那么美国目前居然还有那么多的企业坚守本土，这真的让我感到诧异。”