Businesses want to invest in stable and growing economies. This means destinations where governments are investing in their infrastructure, education and health care systems to support the flow of goods and a competitive workforce. And where there is stability in leadership and transparent legislative and legal processes, there is a basis for solid, long-term growth.
The United States is one country currently debating its tax system. The US policy of taxing US-based businesses on their global earnings (instead of a territorial approach) leaves the US as the only G7 country with this system. When coupled with a corporate tax rate that exceeds all other developed nations, reform is a real possibility.
Despite these perceived negatives, the US has been able to avoid undue capital flight. How? In general, the country’s trade and immigration policies have been viewed as positive for encouraging US investment.
To attract steady, long-term investment, a country must evaluate the whole of its tax, fiscal and legal systems, along with its physical infrastructure and labor resources.
Achieving the right mix is a balancing act that countries are attempting all around the world.
While tax policy is certainly a key factor in choosing where to invest, when viewed in isolation it is rarely sufficient to change the economic behavior of a business or investor. For most businesses, it is about finding the right mix between the tax environment and other growth and value drivers.
As policymakers seek new ways to drive economic growth, they want and need to hear from companies about what that mix would be and how potential changes would affect business decisions.
The economy can only grow when all the right pieces are in place.
This article was originally published in Tax Insights on 1 September 2017.