Bermuda and the Cayman Islands may have some competition for Barack Obama’s vitriol over tax havens if Canada keeps on its low-business-tax course. The Harper government in Ottawa has quietly dropped its corporate tax rate and has pressed the provinces to do the same in order to get to a low combined tax rate for businesses. American companies pressed by the threat of the Obama administration to tax overseas profits have begun to notice:
In a clear indication that Canada is starting to be considered a low-tax place to do business, Tim Hortons Inc. announced Monday plans to shift its base of operations from Delaware to Canada for tax purposes.
Further, analysts indicate this is also a sign of unease among corporations regarding the U.S. business environment, where taxes are likely heading upward to deal with trillion-dollar deficits and proposed health-care reforms; and the White House is looking to crack down on companies that invest abroad. …
In Canada, the federal corporate tax rate is headed to 15% in 2012, and the federal Conservative government has called on the provinces to get to a 10% business levy by the same timeframe – for a combined 25% rate on corporate income. Alberta is already at 10%, British Columbia will be there in 2011, Ontario by 2013, and New Brunswick will go down further, to 8%, in 2012.
In the United States, the top corporate tax rate is in the mid-30% range. As a result, the U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries.
Obama’s plan to close the “loophole” of foreign profits will push more American companies into relocating abroad. Taxing foreign profits at the same rate as domestic earnings will place a competitive burden on American companies that grants an advantage to foreign competitors. Eventually, American companies will either have to withdraw from global competition and compete solely at home, or they will have to move out of the US in order to return to an equal tax position as their competition, whose governments only tax them on domestic earnings.
The administration scoffed at the notion that vast numbers of corporations would move their headquarters — and employees — out of the US and overseas, but now that won’t be necessary. They can simply cross the northern border into Canada, many to the high-tech city of Toronto, to establish themselves as a Canadian company. The lower taxes at home, along with the lack of requirement to treat all income as domestic for tax purposes, would allow them to compete more easily. It would also put them out of the reach of the decidedly business-unfriendly White House, which has stirred up populist resentment towards the corporate world since the first day Obama arrived.
Perhaps Obama should learn from Stephen Harper instead of fighting him. In this fight, Harper will win — and all of us will lose.