Is the right next step for promoting American business investment in African markets a tax credit that encourage American companies to repatriate their investments on the continent? The Africa Report ran an interview in November with Rosa Whitaker, head of the Whitaker Group. She argues that this tax credit is the right investment response for US-Africa business policy. Initially, I thought this was a great idea, and then questions started coming up. I’ll lay them out here, will do my homework over the next few days and come back with another post and hopefully, a few answers.
The US’ international corporate tax law has gained increased attention with the likes of Burger King moving their headquarters to Canada in order to benefit from a more favorable corporate tax structure. Currently, multinationals pay taxes to the country in which they operate, and also pay taxes to the US. Companies like Apple go to great lengths to avoid paying these taxes while remaining within the law. President Obama took executive action to counter inversions like that implemented by Burger King, and has talked about ways to encourage companies like Apple to bring their profits back to the US. Ms. Whitaker’s argument for a tax credit for US company investments in African markets fits within this debate.
A tax credit could be an attractive investment incentive for American companies, but what could be the impact on African countries? A number of African countries with the support of the African Development Bank are working to improve their ability to negotiate deals with multinationals. Furthermore, African countries are under pressure to not become tax havens, though the appeal of multinationals parking hundreds of millions of dollars in the country is tough to say no to.
I would be interested to see available data on tax compliance among US companies operating in African countries. I wonder if Morten Jerven has any of that in his book on Africa’s data problem. During the U.S.-Africa Leaders Summit, Mo Ibrahim pointedly called out companies doing business on the continent for not paying their taxes. The rise of the big private equity firms – KKR, Blackstone, and Carlyle – has brought questions about how much of the returns from their investments will remain on the continent once an attractive exit opportunity presents itself.
What alternatives are there to a tax credit? Who are the smartest people on this topic? I look forward to working on these questions and getting my observations out in a post a little later on.