Will US switch tax burden from corporate tax to VAT on consumers?

Mon 10th Jan 2011

The Association for Finance Professionals (AFP) has reported that global companies are shunning the US because of its corporate tax regime. High business taxes are encouraging corporates to invest in territories where the tax burden is tilted towards consumer taxes such as VAT and GST.  This would replace the existing US Sales & Use Taxes.

Over the past 15 years, there has been a widespread movement to cut job-creating taxes – corporation tax and employment taxes – to attract mobile international capital investment. Countries such as Ireland, Germany and Mexico have been reducing corporate taxes and increasing VAT rates as their consumers have limited choice on cutting their spending and tax burden.

The AFP has suggested that the US needs to reform its tax system to improve the US’ foreign direct investment competitive profile. Measures they suggest include improving tax charges on repatriated foreign earnings.

In a related move, the US Secretary of State, Timothy Geither, said the US was looking at corporate tax reforms and a broadening of the tax base to attract foreign capital.