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The Resource for the Global Finance Profession

State of the Union: What It Means for Corporate Treasury

  • By Ira Apfel
  • Published: 2012-01-25

Whether President Obama can make good on the laundry list of initiatives he proposed in last night’s State of the Union address remains to be seen. But two could have a direct impact on corporate treasury and finance.

“From now on, every multinational company should have to pay a basic minimum tax,” the President said.

A minimum corporate tax would, in theory, discourage multinationals from keeping their earnings in the foreign countries where they were earned and are not taxed, or are taxed at lower rates. Multinationals that choose to pay a minimum corporate tax would do so on top of any tax they pay in the other countries, eliminating the advantage of keeping those earnings offshore.

While AFP is pleased that President Obama  recognizes the inefficiencies in the current corporate tax system, AFP believes that imposing new taxes will only further harm the competitiveness of the U.S. economy. As the voice and advocate for the treasury and finance profession, AFP has long said that such policies will only encourage companies to further expand their investment and hiring in other countries. Since the start of the 112th Congress, AFP has strongly encouraged Congress to consider repatriation legislation that would permanently remove barriers to companies returning those foreign earnings to the U.S. in the form of dividends or transfer payments.

Enactment of tax reform for repatriated foreign earnings  should remove economic incentives for companies continue to build defensive cash balances outside of the U.S. or invest their cash in the foreign country where it was earned, generating no stimulus to the domestic economy.  By eliminating taxes on repatriated foreign earnings or reducing those tax rates to levels that are more in line with other developed economies, companies will be more inclined to expand domestic investment and hiring.AFP is renewing its efforts and embarking on a campaign to encourage Members of the 112th Congress to consider legislation that would implement a permanent change to the tax code to allow U.S. companies to repatriate foreign earnings at a tax rate that enables the U.S. to compete for investment of those earnings with other countries that tax those earnings at significantly lower rates.

Focus on China  

If President Obama was vague about the minimum tax rate and other corporate tax details, he was more overt about dealing with China.

“Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trading practices in countries like China,” he said. “There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders. And this Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing financing or new markets like Russia.”

The President noted that his Administration has brought trade cases against China at nearly twice the rate as the Bush Administration, and it has criticized China about the artificially low yuan. The proposed new agency signals a harder line by the Obama Administration which, in turn, could help U.S. corporates doing business in China. “

Read the entire State of the Union speech here.

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