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US foreign direct investment jumps 68% in 2015, inversions a factor

[WASHINGTON] Foreign investors stepped up acquisitions of US-based businesses last year, boosting foreign direct investment (FDI) to a record high, but part of the increase was due to corporate tax inversion transactions.

The Commerce Department said on Wednesday FDI surged 68 per cent to US$420.7 billion, the highest since the government started tracking the series in 1982.

Foreigners spent US$408.1 billion to acquire existing business and US$11.2 billion to set up new enterprises. The remaining US$1.4 billion in FDI last year was for the expansion of existing foreign-owned businesses in the United States.

Planned total expenditures, which include both actual and planned future expenditures, totaled US$439.2 billion in 2015.

Manufacturing accounted for more than half of the FDI inflows last year, with investment totaling US$281.4 billion. Much of the investment was in pharmaceuticals and medicines industries.

Ireland was the largest source country, accounting for US$176.5 billion, probably because of corporate inversions - where a domestic corporation that is currently the owner of its worldwide operations becomes a subsidiary of a foreign corporation for tax purposes.

"A US corporation can initiate an inversion either by creating a foreign corporation to be its new parent or by merging with an existing foreign corporation and ceding control," according to the Commerce Department.

The department said its direct investment surveys do not collect information on whether a US corporation became foreign owned as a result of a corporate inversion.

It said, however, that using publicly available information, such as commercial databases and press reports, it estimated that newly inverted US corporations accounted for approximately 20 per cent of first-year acquisitions in 2015.

Before the Obama administration took action in April to curb tax-avoiding inversions, Ireland was a major beneficiary, as companies sought to take advantage of its low tax rates.

Last year, the United States also saw large acquisitions in finance and insurance, in real estate and rental and leasing, and in professional, scientific, and technical services.