Saturday, April 16, 2016

244.2 - Good News: Treasury cracks down on "corporate tax inversions"

Good News: Treasury cracks down on "corporate tax inversions"

Next up in Good News is a topic that has had some attention recently, it's the issue of what are known as corporate tax inversions.

In a tax inversion, a US merges with - more accurately, buys out - a smaller foreign firm. But it is portrayed as the bigger US firm being taken over by the smaller foreign one and the foreign company's address becomes the corporate address. So what had been a US firm is now claimed to be a subsidiary of a foreign firm which can lower its tax rates through internal borrowing and can more easily move non-US profits around the world and back to shareholders while avoiding U.S. taxes.

In short, it's a scam. A legal scam, but still a scam.

On April 4, credit where it's due, the Obama administration's Treasury Department released its third and most far-reaching set of rules to combat corporate inversions. Corporations and their lawyers mostly shrugged at the previous two rounds of rules, but these are being called unexpectedly aggressive and are being taken very seriously. The next day, the Amazing Mr. O renewed his call for legislation to limit corporate tax inversions, which he called one of the "most insidious tax loopholes out there."

The new regulations target "serial inverters," companies that have grown larger through repeated inversions, and make it harder to engage in what's called "earnings stripping," where US-based profits are shifted on the books to other countries to avoid US taxes.

GOPpers were quick to denounce the move; one, Rep. Charles Boustany, said "This proposal will do little to stop actual inversions."

Which is especially interesting because pharmaceutical companies Pfizer Inc. and Allergan had been working on a $160 billion merger, which would have created an Irish company, even though Pfizer would continue to operate out of New York City and Allergan - a product of multiple inversions whose corporate address is in Dublin - has its offices in Parsippany, New Jersey.

The merger was to be the biggest inversion deal ever and dodge an estimated $32 billion in US taxes. But just two days after the new rules were announced, the deal was cancelled.

Sometimes, it just works out.

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