- By Pooky, this blog economics journalist
It finally is here, the Democrat Party of the US and “Protectionism.”
During the US presidential campaign, many here in Thailand anticipated a rough “Trade Relations” with Obama. And actually, this blog wrote about it-way back then.
Now Obama says he will get tough on foreign trade, and push US exports. What does that really mean?
But back to the issue, what is higher tax on US multinational, except increasing the cost of foreign operation. What is increase cost of that foreign operation, but to make the US a more competitive place to do keep US businesses at.
All of the above, off course, is understandable, since un-employment in the US is still hovering about 10%. And massive numbers of US firms are heading to China and other emerging markets-backed up by the emerging market trend of strong economy.
Obviously, Obama needs to slow the trend of re-locating out of the US down, to protect US jobs.
And as US goes about protecting US jobs, for Thailand, does it mean a more negative treatment of Thailand’s being on the “Priority Watch List” of countries? The list, itself, means potential to get hit with higher import tariffs.
The specific Implication for Thailand and Multinational ?
- Well there could be a number of factors to consider-particularly in the double taxation treaty with the US-all the way to Thailand’s investment incentives, all the way to pending free trade agreement with the US, all the way to the pricing structure of all kinds of US goods and services traded with Thailand, and all the way to the competitive structure itself. Then off course transfer pricing and how multinational conducts businesses.
Yet other said it will a boon for Thai companies and other countries in Thailand, as US firms here gets hits with higher taxes back-home.
But what are the tools available to Thailand to manage the situation, if it indeed think a response to the situation is needed-since the US is in the top five countries globally with investments in Thailand?
- Thai Capital Requirement, Profitability and Tax
This blog just want to make a note on the capital requirement on multinationals in Thailand. Capital investments, obviously impact the level of profit and taxation.
According to a recent official ruling from the Department of Business Development the minimum capital requirement for a BOI companies will depend of whether the promoted company only conduct a business promoted by the Board of Investment or whether it will exercise a non promoted business as well.
If a foreign company exercise a business activity that is promoted by the BOI the minimum capital requirement will be as required by the Board of Investment in relation to this activity.
If a foreign owned company has obtained a BOI license to exercise a business activity which is promoted by the BOI and wishes also to exercise an activity which is not promoted by the BOI but is regulated by the Foreign Business Act then the minimum capital requirement will be the Capital Requirement under BOI + the Capital Requirement under FBA.
The following is from Cato@Liberty
Posted by Daniel J. Mitchell
The new budget from the White House contains all sorts of land mines for taxpayers, which is not surprising considering the President wants to extract another $1.3 trillion over the next ten years. While that’s a discouragingly big number, the details are even more frightening. Higher tax rates on investors and entrepreneurs will dampen incentives for productive behavior. Reinstating the death tax is both economically foolish and immoral.
And higher taxes on companies almost surely is a recipe for fewer jobs and reduced competitiveness.
The White House is specifically going after companies that compete in foreign markets. Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral. The White House thinks that this income should be taxed right away, though, claiming that “…deferring U.S. tax on the income from the investment may cause U.S. businesses to shift their investments and jobs overseas, harming our domestic economy.”
In reality, deferral protects American companies from being put at a competitive disadvantage when competing with companies from other nations. As I explained in this video, this policy protects American jobs. Coincidentally, the American Enterprise Institute just held a conference last month on deferral and related international tax issues. Featuring experts from all viewpoints, there was very little consensus. But almost every participant agreed that higher taxes on multinationals will lead to an exodus of companies, investment, and jobs from America. Obama’s proposal is good news for China, but bad news for America.