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AMERICAS


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Bold move: the fiscal calculations behind Mr Biden’s infrastructure plan have raised some eyebrows


dance of risk capitalmeans taxes alone will not deter capital-hungry, early stage businesses. “If you have a new idea or invention, deciding where to grow your business is a matter of where you can get the best investment deal. And there is no place that compares with the US on that,” says Ms Julius.


Still as attractive The side effects of these reforms extend beyond national borders. Plans to scrap the exemption of the first 10% return on tangible investments from the Gilti surcharge will, according to Mr Bunn, “be a huge burden on business invest- ment in developing countries”. Indeed, in these markets, investments in physical assets are more common than intangibles, and the required rate of return is often higher than advanced economies. Julie Teigland, EY’s managing partner for


Europe, Middle East, India and Africa, says Mr Biden’s actions are being watched closely by European companies because the US is a material market. “What happens with their operations has an impact on their headquar- ters, activities elsewhere, tax strategies and tax planning,” she says. They will be directly hit by a new surcharge called ‘Shield’ which ensures foreign MNCs with US activities pay a mini- mumrate on their local profits—just like their


June/July 2021 www.fDiIntelligence.com


US counterparts operating abroad. Itempowers US authorities to deny deductions for busi- nesses headquartered in countries that tax cor- porates less than 21%. The consequence, according to Mr Bunn, is


that “if you are a foreign MNC and you want to sell to customers in the US, maybe it makes sense to run your foreign investment through Canada or Mexico instead”. But others insist the rising US tax burden will not significantly impact inbound FDI. “You don’t go to the US because it’s a favourable tax environment,” says Douglas van den Berghe, chief executive of NxtZones, a global network of economic zones. “Companies go to the US because it has a huge domestic market, has high purchasing power and is a huge innovation platform.” Additionally, moving taxes in different


directions does not create equal, but rather opposite effects on foreign investment. “The impact of FDI on MNC behaviour is much big- ger when countries lower tax rates, rather than when they increase them,” he notes. In May, Mr Biden conceded to Republican


pushback and said he was open to considering a 25% corporate tax rate, but he has shown less willingness to compromise on other reforms. Given the importance investors place on infra- structure, at least they cannot complain about howtheir higher tax bills will be spent.■


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