On June 9, 2021, Friedemann Thomma was quoted in Mergermarket on the Biden administration’s proposal to overhaul U.S. corporate tax law, which some believe will make domestic companies more attractive to foreign acquirers that have access to advantageous tax structures. According to the article, the Treasury Department called for raising taxes on corporate income through higher tax rates and restrictions on a range of strategies companies use to reduce the amount of their overseas earnings that is taxable in the United States.
Thomma says he does not believe the Biden proposal will necessarily accelerate inbound M&A. But he says that if enacted it would have a major impact on U.S. multinationals and make it much more complicated for them to remain competitive against foreign rivals. Dealmakers are already taking the proposal into account when structuring acquisitions. Thomma says that in certain recent situations he has seen where investors have had the option of forming either a domestic or foreign holding company for a deal, they have chosen the latter to head off the risk that the plan becomes law.
However, Biden is not just pursuing an overhaul of domestic tax policy. The administration is making a big push to reach an international agreement to establish a global minimum tax for corporations and allow countries to tax earnings on the largest companies where consumption happens, not just where value is created. The United States and the other G7 countries struck a compromise this past weekend on a 15% minimum global rate, and the proposal now goes to the G20 and the OECD for further negotiation.
Thomma is skeptical about the hoopla over the 15% announcement. He views it as more of a political statement meant to signal that the countries want fair taxation and are ready to apply pressure on other nations to fall in line. “I am very suspect about that process in terms of speed, and then also in terms of implementation because at the end of the day tax is nothing other than a factor in the global competitive marketplace,” says Thomma. He notes that countries that rely on low tax rates to attract foreign investment may be reluctant to give up their competitive advantage.