Investments in U.S. less attractive due to new minimum tax: ifo

BERLIN, March 21 (Xinhua) -- The introduction of a minimum tax in the United States as included in the Inflation Reduction Act (IRA) is likely to increase the tax burden for global companies and make investment in the U.S. less attractive, the German ifo Institute for Economic Research said on Tuesday.

The 15 percent minimum tax affects many large international companies with subsidiaries in the U.S., including 20 to 30 from Germany, according to a study conducted by the Munich-based institute for the Ministry of Finance (BMF) of Europe's largest economy.

There are still "many ambiguities" in implementation, including a possible overlap with other minimum taxes, such as the one which the Organization for Economic Co-operation and Development (OECD) is planning. The uncertainties "likely tend to dampen investment in the United States," the study said.

Like other experts, the ifo Institute warned against protectionist elements of the multi-billion U.S. dollar IRA subsidy package, but at the same time advised the European Union (EU) against reacting to it with debt-financed subsidies.

"The EU should avoid getting into a subsidy race to attract battery or solar cell factories that use known technologies," ifo President Clemens Fuest said in a statement, warning that "such a move is self-defeating."

Despite the new minimum tax, IRA subsidies and lower energy costs in the United States attract foreign investment. With Germany struggling as a business location due to high inflation, many companies in the country are already planning to move their production to the U.S.

According to a recent survey conducted by the German American Chamber of Commerce, 93 percent of companies in Germany intend to increase their U.S. investments in the next three years. One in five are even planning investment volumes of more than 10 million U.S. dollars.

To counter the trend, the ifo Institute recommends that, in addition to negotiations with the U.S., the EU should "focus on competitively awarding funding for research, development, innovation and infrastructure development."