Obama gets tougher; firms look to move out of U.S.

Bangalore: At least half-dozen major corporations in the U.S. like Tyco International (TYC) and Ingersoll-Rand (IR) have proposed reincorporating in Ireland or Switzerland since October because of the U.S. President Barack Obama's plans to clamp down on corporate overseas tax maneuvering, reports Business Week.

This is because both Ireland and Switzerland offer big tax savings than the U.S. or Europe. Also, both of the countries have well-established tax treaties, which decide which country has primary taxing rights and help avoid double taxation. Paul Schmidt who heads the international tax practice at a law firm Baker Hosteller told Business Week that Switzerland's 'statutory' tax rate is 24 percent, which is a huge savings over the potential 35 percent federal tax rate that the business firms could owe in the U.S. Meanwhile, Ireland has a 12.5 percent corporate tax rate and a good working relationship with the Internal Revenue Service (IRS), according to Conor Begley, an independent tax consultant and Former Director of international tax at Grant Thornton.

According to the international tax experts, the U.S. based companies would face the exit charges (taxes based on lost revenue to the IRS for future earnings) and be removed from the Standard & Poor's 500-stock index. Several companies that have "re-domiciled" have been dumped from the index. So some companies could be scared off from relocating their official bases from the U.S.

J.Erik Fyrwald, the CEO of $4.2 billion water-treatment and chemicals company NALCO worries that changes to corporate tax law could also make U.S.-based companies targets for foreign acquisition. "If it got to where we were unable to effectively compete globally, we would have to evaluate our options."