Business

Friday May 15, 2009

US MNCs committed to Malaysia

By DAVID TAN


However, proposed US tax reforms may erode their competitive edge overseas

GEORGE TOWN: US multinational corporations (MNCs) remain committed to their investments in Malaysia, although their competitive edge overseas may be eroded by US President Barack Obama’s proposed tax reforms.

The proposed tax reforms, targeted for implementation in 2011, are aimed at attracting foreign earnings parked overseas back to the United States to create additional tax revenue of US$210bil and also to inject more liquidity into US markets.

It is estimated that about US$700bil or more in US corporate earnings have accumulated in overseas accounts in recent years.

Intel Malaysia corporate affairs manager Loo Cheng Cheng said Intel was evaluating the various taxation proposals but “remains committed to its investments in Malaysia and will continue to sustain its business and its operations in the country.”

“Since 1972, Intel has grown its workforce to some 10,000 from 100 in Malaysia. Over the years, Intel has invested more than US$3.7bil in Malaysia.

“Malaysia continues to hold a special place for Intel because of its growth potential and its commitment to high end knowledge-driven assembly test operations, design, research and development,” she said.

Entegris Inc chief operating officer Bertrand Loy said all the group’s investments were driven by a number of considerations, tax benefits being only one of them.

“We have invested in Malaysia because of the strategic imperative to be closer to our customers, the quality of the team that are able to assemble and lead, and the quality of the products we are producing in Malaysia. As long as these other factors remain true, our plans to invest in Malaysia will remain unchanged,” he said.

Penang Seagate Industries (M) Sdn Bhd vice-president Oh Kean Cheong said Seagate remained committed to maintaining a strategic presence in the Asia Pacific region, including Malaysia.

Tax consultants said the proposed tax reforms by Obama would force US MNCs to reconsider their overseas investments and increase their business process outsourcing (BPO) activities.

KPMG partner Ooi Kok Seng told StarBiz that the tax reforms would eat into the bottomlines of US MNCs, prompting them to increase their BPO activities in lower cost countries in order to stay competitive.

“Once the new tax laws are adopted, the investment capacity of US MNCs would be affected, as their foreign profits would need to be repatriated and subject to taxation before they are eligible to claim tax deductions,” Ooi said.

Under the current tax system, US MNCs incur only about a third or half of the 39% corporate tax rate on their worldwide profits, as they are allowed to claim deductions for expenses and foreign taxes incurred overseas, without repatriating the overseas profits for taxation, according to Ooi.

“The current US tax law has established a system in which you pay lower taxes if you create a job in Penang than if you create a job in the US. It has also enabled US MNCs to continue reinvestments overseas even during slower growth periods,” he said.

Ooi said in order for US MNCs to stay competitive they would have no choice but to increase their BPO activities to BPO hubs such as Malaysia to reduce their operations cost.

BPO activities include information technology services, medical billings, payroll and accounting services.

In the recent KPMG report – Exploring Global Frontiers – Penang was ranked as one of 31 BPO destinations in the world, due to its lower cost, access to high growth markets and pool of skilled human resources.

Penang is presently the base of BPO centres belonging to Intel, Dell, Motorola, Citicorp and IBM.

“Should the Congress adopt the proposals, we have to seriously look into our cost structure in Malaysia and to strengthen our competitive edge to attract more foreign direct investments and BPO activities from the US,” Ooi said.

Malaysian Institute of Economic Research senior research fellow Shankaran Nambiar said the net impact of these proposals could put a brake on US investments into Malaysia and require the country to find new sources of growth.

“Malaysia will have to seek different sources of investment and look beyond the US, placing greater emphasis on Asia. “Malaysia, in that context, will have to extend its trade and investments beyond the ASEAN region to tap into the growth market in East Asia as well as India, Australia and New Zealand,” he said.

InvestPenang executive committee chairman Datuk Lee Kah Choon said Obama’s move signaled a return to protectionist policies.

“The move will erode US companies’ competitive edge overseas, and may prompt them to relocate...” Lee said.


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