This past July President Barack Obama had many heads swirling when he went after American businesses who base their headquarters in other countries, specifically mentioning Ireland. Obama’s speech in California came at a time when many businesses in America are looking to rearrange their operations given the high 35% tax corporation rate in the U.S. Obama said, “What we are trying to do is to say that if you simply acquire a small company in Ireland or some other country to take advantage of the low tax rate [and] you start saying, ‘we are now magically an Irish company,’ despite the fact that you might have only 100 employees there and you have got 10,000 employees in the United States, you are just gaming the system.” He further castigated those looking to flee the high American tax rate, adding, “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.”
Ireland in recent years, thanks to its low tax rate of 12.5%, has become one of the top investment countries in the world. Studies from the Industrial Development Authority have shown that Ireland, since 1990, has had more capital investment than Brazil, Russia, India, and China combined, with 70% of foreign investment coming from the U.S. in 2013. Among the major companies to invest in Ireland over the past few years are Amazon, Twitter, Paypal, ebay, Yahoo, and Deutsche Bank.
These tax loopholes are doing wonders for Ireland, but hurting the American economy. While it is legal in the United States for U.S companies to base themselves in foreign territories, Obama called it “wrong,” adding that “you don’t get to choose the tax rate you pay. These companies shouldn’t either.”
Part of the problem in the U.S lies within the flawed American tax system. Just recently it was announced that Warren Buffet, the American billionaire and close aide to Obama, planned to buy Tim Horton’s, a doughnut chain in Canada, for $3 billion. This will enable the fast food giant Burger King, which Buffet co-owns, to avoid paying millions in taxes by basing themselves in Ontario.
Obama has supported Democratic efforts in Congress to stop businesses from fleeing tax loopholes, but has been met with resistance from those who argue for a larger reform of the tax system that would lower the high corporate rate.