US tax reform seen cutting MNCs’ appetite for FDI
THE US tax reform program could reduce the supply of funds available for foreign direct investment (FDI) as companies confine their investment activity to the US and repatriate as much as $2 trillion in profits held overseas, according to the United Nations Conference on Trade and Development (UNCTAD).
UNCTAD said in a report released on Tuesday that the reforms affect US multinationals that account for up to 50% of global FDI.
UNCTAD said in Issue 29 of its Investment Trends Monitor that tax reform could cause US multinationals to reduce retained earnings held in overseas units and may ultimately lead to a “re-shoring of manufacturing activity” previously outsourced to low-wage countries.
American Chamber of Commerce of the Philippines executive director Ebb Hinchcliff told BusinessWorld in a text message that it may be too early to tell what the impact of the reform may be on FDI.
“My guess is the tax bill is too recent to have an impact,” he added.
When asked to discuss the ultimate impact of US tax reform, Mr. Hinchcliff said he is unsure if the effects will be noticeable.
The US under President Donald J. Trump has adopted an “America First” stance, and adopted the tax reform program in December with a view to incentivizing companies through the tax code to fund more economic activity within the United States, boosting domestic jobs.
UNCTAD said the reforms are particularly directed at stimulating activity in companies with high capital investment requirements, by making capital expenditures (capex) on equipment fully deductible.
“A few large firms, including AT&T, Boeing and Apple, announced significant new investments in the United States shortly after the adoption of the bill,” UNCTAD said.
“If such funds do flow out [ from the Philippines] they should begin to be reported in BSP ( Bangko Sentral ng Pilipinas) monthly data several months from now,” American Chamber of Commerce senior adviser John D. Forbes told BusinessWorld in a text message. The Philippines received $7.98 billion worth of FDI in 2016, up from $5.64 billion in 2015.
Trade Secretary Ramon M. Lopez did not comment on the possibility of reduced FDI, though he remained confident that the Philippines will remain an attractive destination overall.
“We are bullish on Japan’s FDI this year. [ This is] following through on the investment cooperation agreement signed,” he said in a text message. —