Lawmakers Move to Halt Inversions

 Posted on September 05, 2014 in Taxation Law

Inversion, or the process by which a corporation moves its base to a foreign country to avoid corporate taxes in the United States, has been a favored tool to avoid taxes for years now. However, in the future, new rules could possibly slow down the rate of inversions.

Lawmakers have proposed new rules that they believe will make it less attractive for companies to move their bases overseas, to avoid taxes. The rules have been specially designed to discourage inversions, and prevent the large volumes of lost tax revenues as a result of these moves by corporations.

The new rules are meant to suffocate corporate inversions, and discourage such moves in the future. The policies are aimed at making it harder for companies to move their bases overseas, and to make it less profitable for them to do so. Typically, during an inversion, an American company will move its tax base to a country outside the United States, where the taxes are much lower. American companies usually prefer countries like the United Kingdom or Ireland. In such cases, it is only the tax base that is moved overseas, and the administrative headquarters of the company continue to remain in the United States.

Lawmakers have long found that such techniques caused lost revenues in taxes when these companies moved overseas. This week however, federal administration officials launched a major attack on inversions, by enacting new rules that make it much more difficult for American companies to access cash from their overseas assets, without taxes at American rates. Additionally, many recent American inversions have involved companies merging with smaller foreign companies in order to move the tax base overseas. The new rules have tightened the standard for any merger to qualify as an inversion.