Efforts by U.S. Secretary of the Treasury Jacob Lew to stop American companies from relocating their corporate addresses overseas to pay less taxes is aimed at companies in his own country.
But the Washington, D.C.-based Organization for International Investment (OFII) warns new regulations against so-called “tax inversions” could have unintended consequences for European companies with subsidiaries in the U.S. These include several German companies including Bayer AG, BASF SE and Siemens AG, which are represented by the lobbying group.
“We are worried that foreign companies could get caught in the crossfire in the debate over tax inversions,” said Nancy McLernon, chief executive officer of OFII. After all, companies such as Siemens and BASF have structures similar to U.S. companies that have moved corporate addresses overseas.
While Mr. Lew has released some initial information about how he plans to make it harder for U.S. companies to avoid taxes, many details remain unclear, particularly concerning foreign companies, Ms. McLernon said, adding her organization fears foreign companies in the future will not be able to send as many top managers as before to their American subsidiaries.
“That would have a negative impact on the expansion strategies of the companies,” she said.
Congress has looked at several proposals in recent months, all of which aim to make tax inversions less attractive for U.S. companies by making it harder to move large American subsidiaries abroad. But these proposals could have unintended consequences for European companies.
The OFII expresses concern that its in the U.S. could be subjected to a tax disadvantage if laws surrounding the ability of a U.S. subsidiary to take loans from its foreign parent company and still deduct the interest payments from American taxes, change. Ms. McLernon said, it remains unclear how this element of the debate will shift.
German companies are watching the situation closely, but are keeping a low profile.
The German chemical company BASF, which has been on a major shopping spree in the U.S., making acquisitions this year totaling more than €82.10 billion, said only that it it “supports OFII’s position” on the matter.
Investors on both sides of the Atlantic are nervous.
Mr. Lew’s efforts to stifle “creative techniques used to avoid U.S. taxes” is, at the same time, making it less appealing for American companies to acquire European firms. Shares of the British-Swedish multinational pharmaceutical and biologics company, AstraZeneca, plunged by 5 percent on the London Stock Exchange, while its competitor, Shire Plc, tumbled 6 percent. Both were once viewed as attractive takeover targets.