The United States suffered a 15 percent loss of investment from foreign businesses in 2016. This, however, should not be construed as a sign that America is now not an attractive investment destination. The foreign investment slowdown mirrors a whip by the Obama administration which cracked down on the American companies that wanted to transfer their headquarters to any country outside the US. The rationale behind this step- to escape the high corporate taxes in America.
As per the Bureau of Economic Analysis, the United States received $373.4 billion in direct foreign investment in investment. In 2015, the country enjoyed $439.6 billion worth of investments.
Blocking corporate inversion
The controversial technique of avoiding taxes is not a new one. A number of major US companies, such as Burger King, have done it. The previous President Obama-led White House tried to block this development, called a corporate inversion by tightening tax rules. The process was made much more costly. This enforcement method seems to have worked. As per a published report by the Bureau of Economic Analysis, newly inverted American companies were found to be a major chunk of 2015 first year expenditures. This pattern was not repeated in 2016.
The law's manifold effects were seen in Ireland. The Irish companies spent a massive $35.4 billion in 2016 in the United States. This is much lower than the gigantic $176 billion investment done in 2015. The latter year of Irish investment was actually American companies snapping up their Irish rivals and then transferring their headquarters from the US to Ireland. The list of such American companies includes Johnson Controls and Medtronic. Almost no investment in 2016 or 2015 mirrored spends on existing or new Irish-owned business organizations within the United States.
Enticing businesses to stay
The Trump-led White House could, however, drop the tougher US rules applicable on inversions. President Donald J. Trump has pressured the US companies to keep their headquarters and jobs inside America. To entice them, he has pledged to reduce regulations and slash taxes so that they stay.
Although the White House could comparatively easily remove the regulations, reforming the tax structure could be a political problem. Even in the case of Republicans succeeding in cutting taxes, the businesses will not be likely to reap any benefit until 2018. The United Kingdom invested the maximum amount of money in America in 2016. The net UK investment is now at about $54.5 billion.