Trending Now

Building a Resilient Supply Chain with Advanced Predictive…

New Articles

How US tax overhaul has led to increased international investment and M&A activity

Archives, Commentary, Global Trade Daily

How US tax overhaul has led to increased international investment and M&A activity

Leave a comment

The limit on interest deductibility is impacting the way that firms finance domestic mergers and acquisitions which is fueling the existing trend for US companies to pursue foreign M&A.

Why invest in foreign companies?

Growing a business internationally has always been attractive to US companies. Businesses are still structuring for tax purposes, however the main reasons for going abroad are now; the desire to find new markets with more customers, access fresh talent and technology and optimize international supply chains. Foreign markets can be an attractive destination for leading US brands given that if you can succeed in the world’s most competitive consumer market you may find you thrive in less developed economies.

 

Deduction changes

With the recent tax reforms in the US, there have been some changes in the way deductions can be applied affecting the financing of domestic mergers and acquisitions. Often mergers are at least partially funded with debt which would be paid off in the form of a dividend. The dividend would be deductible making it a tax efficient way of financing the acquisition.

This deduction has been reduced greatly in the 2018 US tax reform. Companies were previously unrestricted in the amount of interest they could deduct before tax, but now there is a cap deduction of 30% of their 12-month earnings before interest, taxes, depreciation, and amortization (EBITDA). After 2021, the limitation becomes even more constraining by switching to 30% of EBIT only – that is, the deductions for depreciation and amortization are removed from the calculation, lowering the cap even further.

The deduction applies only when acquiring domestically, so not when buying a foreign company. You can still get the full deduction on dividends for a foreign owned corporation. Based on the current interpretation of the legislation, if you are looking to finance via debt, buying a foreign company will still allow you to benefit from this type of funding mechanism.

Why foreign M&A is more attractive

For insights and an introduction to M&A and carve-outs, take a look at the “M&A and Carve Outs from A to Z” eBook.

Other elements of the tax reform are also likely to drive further M&A and make it more likely that US firms look abroad for these acquisitions:

  1. The tax reform was structured to incentivise businesses to bring money back to the US if they are holding historic earnings off-shore. This windfall of foreign held monies will enable some companies to invest more, with a portion of this spending likely to fuel M&A.
  2. Related incentives to bring money back to the US have also reduced the tax on repatriation of future foreign earnings. Meaning that the return of investment for these foreign assets is improved.

What we are hearing from our clients is that US companies will continue to look to the global market as a way of leveraging faster growth and diversifying their business.

TMF Group

TMF USA are experts when it comes to M&A and international expansion, supported by a strong global presence in more than 80 countries worldwide. While there are always challenges when it comes to foreign investment the recent tax reform has introduced a whole new set of considerations. Please get in touch to find out how we can support your business achieve its global ambitions.

Find out how our services allow our international clients to maintain focus on what matters most to them.

Archives, Global Trade Daily, News

Senators Urge FTA Investment Protections Purged

Leave a comment

Washington, D.C. – Five Democratic members of the House Ways and Means Committee have written to the White House urging President Barack Obama to exclude foreign investment protections from major free trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP).

The five argue that such protections “might undermine buffers against future financial crises” and damage public support for future free trade deals.

The House Ways & means Committee has Congressional jurisdiction over trade issues.

Foreign investment protection is hot-button topic in the TTIP trade deal, prompting the European Union to call a halt to talks on the investment-related components of the proposed pact while the bloc’s 28 members consult “more widely.”

The letter follows a similar letter sent last week by three U.S. senators to U.S. Trade Representative (USTR) Michael Froman asking him not to include investment protection rules in the proposed 12-nation Trans-Pacific Partnership (TPP).

“The consequence would be to strip our regulators of the tools they need to prevent the next crisis,” said the letter, which also cautioned against rules “limiting the use of capital controls or allowing open access for risky financial products.”

Among the letter’s signatories was 2016 presidential hopeful Senator Elizabeth Warren (D-MA), who said such rules would expose “critical” U.S. financial regulations to challenge and dissuade policymakers from writing rules that impact foreign banks.

In response, a spokesman for the USTR said the TPP “would in no way limit the ability of governments to put in place strong consumer protections or to regulate financial markets” and would include “specific provisions protecting regulation.”

12/29/2014

Archives, Global Trade Daily, News

EU Proposes Regional Strategic Investment Fund

1 Comment

Los Angeles, CA – Responding to an increasingly sluggish regional economy, the European Union will create a strategic investment fund that could generate up to $386 billion in private- and public-sector money to upgrade infrastructure, jumpstart the EU’s sluggish economies and ignite job growth.

“The EU must stimulate and modernize its economy, or risk falling farther behind global competitors like the U.S. and China,” said European Parliament President Martin Schulz.

The plan, approved by leaders of the 28-nation EU at their one-day summit meeting in Brussels earlier this week, calls for use of EU seed money to leverage up to 15 times more in private funds for the new European Fund for Strategic Investments with plans to have  it in operation and approving new investment projects by mid-2015.

German Chancellor Angela Merkel said investments fostered by the strategic fund “must go into projects for the future, particularly, for example, in the digital economy or where we aren’t so good on the world market as we should be.”

Investment in areas like schools, universities, green energy and infrastructure is key “if we want Europe to be an economic champion in the future,” she said.

The plan is not without its critics, however, with some EU leaders warning that despite its multi-billion dollar price tag, the proposed investment fund “may not be big enough” to win over wary investors.

“This package looks like creative accounting for the moment,” said Lithuanian President Dalia Grybauskaite, who helped draft a summit communiqué  noting that the strategic fund will accept contributions from EU member states. For the fund to launch, it would also require approval by European legislators.

12/19/2014

Archives, Foreign Trade Zones, Global Logistics, Global Trade Daily, News

China Proposes Three New Foreign Trade Zones

Leave a comment

Los Angeles, CA – Beijing has announced its given the go-ahead to the construction of three new foreign trade zones in Guangdong, Fujian and Tianjin, all modeled on the zone set-up in Shanghai last year.

Officials said the new FTZ will apply “replicable” practice from Shanghai in investment, trade and financial services to the rest of the country and shorten the “negative list” – the sectors where foreign investment is banned or restricted, the cabinet said.

Announcement of the new FTZs comes on the heels of Beijing’s proposed cutting from 79 to 35 the number of sectors restricted or off limits to foreign investors.

After one month for soliciting opinions, the new guidelines will be submitted to the State Council and are expected to come into force by the end of the year.

Sectors with reduced restrictions include steel, ethylene, refining, papermaking, coal chemical equipment, automotive electronics, lifting appliances, electric transmission and transformation equipment, branch railway lines, subways, international ocean shipping, e-commerce, finance companies and chain stores, according to government sources in Beijing.

In addition, the number of sectors currently limited to joint ventures and partnerships has been cut from 43 to 11, while those requiring a majority Chinese investment have been cut from 44 to 22.

Agriculture, high technology, advanced manufacturing, energy efficiency and environmental protection, new energy and modern service industries are encouraged, the sources said.

From January to September of this year, the value of China’s foreign direct investment decreased by 1.4 per cent to $87.3 billion from the same period the year before.

12/15/2014

Archives, Global Trade Daily, News

Report: Confidence in Asia-Pacific Economy Growing

Leave a comment

Los Angeles, CA – Confidence in the economic potential of the Asia-Pacific region continues to get stronger amongst CEOs there, says a new report issued by PricewaterhouseCoopers (PwC).

According to the New Vision for Asia Pacific report, forty-six percent of executives in the region now say they are “very confident” of growth in the next 12 months, up 10 points from 2012 and four points from last year, despite slowing growth in China.

The survey found that 67 percent of the 600 senior business executives surveyed plan to increase investment in the APEC region over the next 12 months. Their plans are spread over each of the 21 APEC member economies, with China, the U.S., Indonesia, Hong Kong, and Singapore the most popular destinations for investment.

More than half of respondents said they are either building or expanding facilities in APEC economies and increase their organizations’ global headcount by at least 5 percent annually over the next 3-5 years.

A healthy, skilled workforce remains a priority, the report says, as 75 percent of respondents already have employee training/retraining programs and 17 percent stated they will implement one.

Supporting this confidence is a vision of an Asia Pacific region that is more connected, both physically and virtually, and an outlook for more balanced regional growth, the report says.

For example, nearly 60 percent of executives say they are now more willing to share insights and resources with business partners in order to speed product development and gain market access. In addition, more than 40 percent say their company will likely enter a business combination outside of their core industry.

“Asia Pacific today stands at a turning point as advancing technologies move beyond national boundaries and create new demands and even new industries,” said Dennis Nally, chairman of PricewaterhouseCoopers International Ltd.

Chief executives, he says, “see the need to be bold in breaking down the barriers to growth. They want to finalize the Trans-Pacific Partnership, address intellectual property issues and encourage regulatory harmony in the region.”

Domestic competition, the survey found, is intensifying, while compliance and tax uncertainties continue. Twenty percent of respondents say they are less confident in their ability to increase profit margins on their domestic operations than they were a year ago. Fifteen percent said their confidence in forecasting compliance and tax liabilities declined over the year.

The survey found that data-driven changes are having an impact in the region; 57 percent of executives say they are more confident of their ability to respond to changes in the marketplace, and half say they are more skilful at forecasting demand. These executives are more likely to be “very confident” of growth than their peers.

PwC released the new report at a meeting of the Asia Pacific Economic Cooperation (APEC) in Beijing.

The New Vision for Asia Pacific report also found that many APEC businesses are not ready to fully participate in the digital economy.

Less than half of Asia Pacific executives are confident they are profiting from their investments in social networks with only between 12 percent and 22 percent of APEC businesses “very confident” across a range of social network capabilities.

11/11/2014

Acquisitions, Archives, Banking on Global Trade, Global Trade Daily, News

Waldorf Astoria Hotel Sold to Chinese Investors

Leave a comment

New York, NY – China’s Anbang Insurance Group Co. has agreed to pay $1.95 billion for New York City’s iconic Waldorf Astoria hotel, the most ever paid for a standing building in the US by a Chinese buyer.

The purchase of the 1,232-room Art Deco tower on Park Avenue is the biggest real estate deal for a single existing hotel in the entire country and marks the high-water mark of a surge in the acquisition of big-ticket New York City properties by Chinese investors.

Earlier this year, Shanghai-based Greenland Holding Group Inc. purchased this year of a 70 percent interest in the Atlantic Yards project in Brooklyn. The project, recently renamed Pacific Park, includes 14 buildings that are yet to be built.

China’s Fosun International Ltd. paid $725 million in late 2013 for lower Manhattan’s 1 Chase Manhattan Plaza, the former headquarters of Chase Manhattan Bank. The building’s main tenant, JPMorgan Chase & Co., has said it will vacate most of its space in the 60-story tower.

Earlier last year, a group including the co-founder of Shanghai’s Soho China Ltd., put $1.4 billion on the table to acquire a 40 percent stake in midtown Manhattan’s General Motors Building, one of New York’s most-valuable office towers.

According to press sources, including Anbang’s purchase of the Waldorf from Hilton Worldwide Holdings Inc., Chinese investors will have bought $2.7 billion of New York-area real estate in 2014, topping last year’s $2.6 billion.

Anbang is reportedly planning a major renovation of the Waldorf, which could include the conversion of some of the hotel’s upper floors into high-end condominiums.

10/07/2014

Archives, Global Trade Daily, News

US Exports to ‘Sub-Saharan’ Africa Surge to $1.7 Billion

Leave a comment

Washington, DC – Over the past ten months, the US Export-Import Bank (EXIM) has reportedly authorized a record $1.7 billion in financing to support exports of American-made products to sub-Saharan Africa.

This record-setting surge “has not only empowered U.S. small businesses to sell their products in global markets, but has also supported more than 10,000 American jobs which contribute to strengthening the U.S. economy,” the trade bank said.

The announcement was made as EXIM President and CEO Fred Hochberg participated in the US-Africa Leaders Summit that recently convened in Washington, DC.

EXIM also said it will pledge $3 billion in financing to support US exports to sub-Saharan Africa over the next two fiscal years and that it had recently signed a memorandum of understanding (MOU) with Angola “to strengthen collaboration on the financing of American-made exports” to the central African nation.

Two-thirds of the population of Sub-Saharan Africa lacks electricity and earlier this month, the bank approved a loan guarantee for $17 million to support long-term financing by the West African Development Bank (BOAD) for the Azito Power project in Cote D’Ivoire.

Financing for steam turbines used in the Azito Power project will support 40 manufacturing and engineering jobs in Schenectady, New York, and Bangor, Maine, said EXIM. The project is part of a long-term strategy to strengthen the region’s power capacity and, in turn, help to position economies there for growth, it added.

Three Louisiana small businesses benefit from EXIM’s $43 million financing of a liftboat destined for Nigeria.

The “Bellator” liftboat is a self-propelled vessel, 150-foot long by 118-foot wide, that lifts and suspends equipment and personnel up to the level of an offshore drilling platform.  About 300 employees of C.S. Liftboats, Inc., of Abbeville, Louisiana, together with Gulf Island Fabrications of Houma, Louisiana, will construct the high-tech vessel.

The Nigerian buyer also contracted for prefabricated liftboat-mounted modules for housing workers; these are built by Fiberglass Unlimited Inc. of Raceland, Louisiana.  This is Nigeria’s first purchase of a new, US-made liftboat system.

According to the bank, Pennsylvania employees of GE Transportation “will benefit from the bank-supported export of GE’s locomotives with Pennsylvania-made engines and components to Transnet in South Africa.”  In its recent transaction, EXIM authorized a $563.5 million loan guarantee to support financing for the sale of 293 locomotives being manufactured by GE Transportation.

EXIM “is firmly committed to equipping US exporters to realize the vast economic opportunities emerging throughout sub-Saharan Africa, which is home to seven out of 10 of the world’s fastest-growing markets,” said EXIM’s Hochberg. “Each transaction the Bank supports creates jobs for local US businesses and strengthens our relationship with a region that has a strong prospect for long-term economic growth.”

08/18/2014

Archives, Global Site Selection, Global Trade Daily, News, Site Selection

China to Invest in Louisiana Methanol Plant

Leave a comment

Vacherie, LA – China’s Yuhuang Chemical CEO has said it will inject a $1.85 billion capital investment in a methanol production complex on the Mississippi River in Louisiana’s St. James Parish.

The project by Yuhuang Chemical Inc., a subsidiary of Shandong Yuhuang Chemical Co. Ltd., represents the first major foreign direct investment by a Chinese company in the state.

Announcement of the investment was made this week by Louisiana Gov. Bobby Jindal and Yuhuang Chemical CEO Charlie Yao.

More than 400 new direct jobs, with an average annual salary of $85,000 plus benefits, and an additional 2,365 new indirect will be created, according to the Louisiana Economic Development (LED).

Construction will begin in 2016, with the first phase of the methanol project beginning operations by 2018.

After the first methanol plant is completed, the company will build a second methanol plant and reach an annual capacity of 3 million metric tons of methanol per annum. A third phase will include a methanol derivatives plant that will produce intermediate chemicals.

Most of the project’s methanol will be exported by oceangoing vessels for use in the parent company’s production of downstream chemicals in China, with approximately 20 percent to 30 percent of the methanol to be shipped by barge and rail and sold to North American customers.

“Following such historic foreign direct investment projects as Sasol in Southwest Louisiana and Benteler Steel/Tube in Northwest Louisiana, our state continues to raise the bar for attracting high-quality, world-class foreign direct investment projects,” said Jindal.

Discussions on the project between the LED and Yuhuang Chemical began in February 2014.

To secure the project, Louisiana offered the company a competitive incentive package that includes two performance-based grants: $9.5 million to be paid over five years beginning in 2017 to offset infrastructure costs of the project and $1.75 million to be paid over 10 years to partially defray the costs of necessary riverfront access and development.

In addition, the company will receive the comprehensive workforce solutions of LED FastStart, ranked the No. 1 state workforce training program in the country, and Yuhuang Chemical also is expected to utilize the state’s Quality Jobs and Industrial Tax Exemption programs.

One of China’s largest chemical companies, Shandong Yuhuang Chemical generated more than $4 billion in 2013 sales and employs more than 5,600 people worldwide.

Its newly formed Yuhuang Chemical subsidiary will make its first major US investment in St. James Parish, where it has secured an option to purchase more than 1,100 acres for a three-phase project next to the Plains All-American

Yuhuang Chemical has selected China Huanqiu Contracting & Engineering Corp., known as HQC, to complete engineering work for the project.

The company has licensed methanol technology from Air Liquide Global E&C Solutions. Hiring will begin in 2015, with employment reaching 200 by 2017 and 400 six years later.

Foreign direct investment projects, said Jindal, “add great value to our state by creating high-paying jobs, increased levels of international trade and extraordinary career opportunities for the families of Louisiana. Our efforts reforming government, lowering taxes, and improving our state’s business climate are paying off.”

07/18/2014

Archives, Global Site Selection, Global Trade Daily, News, Site Selection

German Manufacturer to Build Tennessee Plant

Leave a comment

Dandridge, TN – Wetekam Monofilaments USA, LP has purchased a 93,000 square foot facility in the Jefferson County Industrial Park in Dandridge, Tennessee, where it will manufacture industrial monofilament yarns through a high tech extrusion process.

Established in 1965, Wetekam Monofilaments is one of the largest monofilament yarn manufacturers in Europe.

Currently, 45 percent of its production is for export with 30 percent of production tagged for the North American market.

The new Jefferson County facility will assume production responsibilities for US, Canadian, and South American customers.

In Germany Wetekam operates an in-house laboratory and technical facilities to perform tests required by customers to determine exact properties including strength and flexibility. A similar lab will be a part of the Dandridge plant.

Wetekam Monofilaments yarns are used by a broad range of manufacturers in a variety of products.

The company’s customers include technical weavers, braiders, tufters and knitters in the automotive, medical, sporting goods, and upholstery industries, among others.

07/14/2014

Archives, Global Trade Daily, News

A US Trade Mission to Cuba! What Would Che Say?

Leave a comment

WASHINGTON, DC – The US Chamber of Commerce (USCOC) has just wrapped up a week-long trade mission to Cuba to get a first-hand look at changes in Cuba’s economic policies, develop a better understanding of the country’s current business environment and the state of its private sector.

The mission was led by USCOC President and CEO Thomas J. Donohue, who was joined by Steve Van Andel, chairman of the U.S. Chamber’s Board of Directors and of Alticor Corporation, and Marcel Smits, CFO of the Cargill Corporation and other mission members for meetings with a number of entrepreneurs, private cooperatives, government officials, academics, and religious leaders.

The mission’s findings, he said, will be reported “to lawmakers, our members, and the American business community.”

The USCOC has long advocated normalizing US-Cuba relations, including a lifting of Washington’s 50-year embargo, pointing to Cuban President Raul Castro’s efforts to jump-start the country’s stagnant economy with a series of unprecedented economic reforms.

Despite the fact that the island opened to limited foreign capital in 1995, Cuba has actually seen a significant drop in foreign investment and sluggish economic growth over the past decade. The economy grew by only 2.7 percent last year, far below the government’s goal of 7 percent.

While almost half-a-million Cubans have obtained licenses to operate small, private businesses, Cuba’s economy is still seen as highly centralized, inefficient and over regulated.

In March, the country’s National Assembly responded by unanimously approved what Castro called a “modernization bill” aimed at radically liberalizing the Communist-run island’s foreign investment rules.

Among other provisions, the new investment law slashes taxes on profits from 30 percent to 15 percent; gives new investors eight years of exemption from paying taxes; speeds-up the approval process for foreign investors; provides added legal protection for foreign investors; and cuts taxes on investments in most sectors to 15 percent, although special conditions will be set for investment in natural resources.

Before the trade mission left for Havana, Donahue told the media that, “We want to learn more about these reforms, determine if they have brought about real and lasting changes, and find ways to encourage Cuba’s budding private sector.”

The trade mission, the first to Cuba by the USCOC in 15 years, drew sharp criticism from the Cuban community in the US, which accuses the Castro regime of continuing to persecute political opponents in violation of international law.

Senator Robert Menendez (D-New Jersey), chairman of the senate Foreign Relations Committee, said in a press interview that political opponents continued to be arrested “without justification” in Cuba and that “such conditions hardly seem an attractive opportunity for any responsible business leader.”

Havana, he added, “unjustifiably jails foreign business leaders and breaks international labor standards” and that he “questions the merits of engaging a government controlling almost all the country’s economic activity.”

06/02/2014