In Spite Of Federal Initiatives, Tax Inversion Continues

 Posted on July 07, 2015 in Taxation Law

The federal administration has been taking a number of initiatives in order to reduce the corporate practice of tax inversion. However, statistics indicate that these initiatives are not having the required effect.

Tax inversion refers to the practice of a company moving its legal base offshore while retaining most operations in the US. According to the Wall Street Journal, companies are continuing to move base to lower-tax destinations overseas, and are taking over US companies after doing so. They are taking advantage of lower tax rates in these tax havens. Typically, in these lower-tax havens like Ireland, corporate tax rates are in the mid-teens. That is in sharp contrast to the United States corporate tax rate, which hovers at 35%.

Not only are these companies saving on the taxes that they have to pay because they have now shifted legal base overseas, but they also enjoy profits from the mergers that they're able to bring about from their overseas bases. A number of companies have overseas bases that are used to save on taxes.

These companies simply domicile overseas in countries like Ireland, which have low tax corporate tax rates, and then acquire companies that are based in the United States.

Some types of corporate company structures, like those in the pharmaceutical industry, seem to be better suited for inversions, and the very lucrative merger deals that usually come about. However, it is not just pharmaceutical companies that are taking advantage of all of these tax savings by moving base overseas, and acquiring US companies. However, these companies deny that they're moving base overseas solely in order to enjoy savings from taxes.