corporate inversion-2-1
TRANSCRIPT
CORPORATE INVERSIONDYLAN L. POTTER
Vocabulary Corporation- A legal entity that is separate and distinct from its owners. Corporations have most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.
Corporate Inversion- reincorporating a company in order to reduce the tax burden on income earned abroad. Inversion as a strategy is used by companies that have a large portion of income from foreign sources since the income is taxed abroad and in the country of incorporation.
Headquarters-the place or building serving as the managerial and administrative center of an organization
OECD (Organization for Economic Cooperation and Development)- forum where the governments of 34 democracies with market economies work with each other, as well as with more than 70 non-member economies to promote economic growth, prosperity, and sustainable development.
Repatriation- measures taken by a country to reduce foreign capital investment.
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
2
4
6
8
10
12
Inversions By The Year
Year
inve
rsio
ns
“These corporate expatriations aren’t illegal,
but they sure are immoral.”
-Senator Charles Grassley (R-IA)
Where are they going?
Where are they going?3%
31%
3%
14%3%8%
19%
3%3%
8%
3%3%
New Headquarters Location
netherlands bermuda panama
cayman islands antigua england
ireland austrialia UK
canada luxemburg denmark
How has legislation changed as a result of inversions?
History 1983- McDermott Inc.
First inversion to trigger major policy response
The result? In 1984, Congress added a new rule to the tax code which was intended to tax all
unrepatriated earnings of a foreign subsidiary, of which a US parent owned more than 10%,
involved in a share inversion.
This insured that temporary tax deferral via inversion would not be made permanent.
McDermott Inc. saves over $220 million in revenue over 5 year span.
History 1994- Helen of Troy
Began using US stock to “reorganize” foreign stock in a subsidiary company which was a tax free action.
Another form of inversion that was allowed via US tax codes.
Two months later, the IRS issued new guidelines for share inversion to be tax free.
New “strict” guidelines
The result? These guidelines were not a strong deterrence to the perceived benefits of inversions.
An unprecedented amount of inversions followed in the late 1990’s and into the early 2000’s
American Jobs Creation Act of 2004
If a foreign corporation meets the test for a surrogate foreign corporation
(substantially all property held by US company, 60% owned by shareholders or corporation with the U.S., or after incorporation company has little business in US)
the tax benefits from engaging in a corporate inversion will be eliminated. Thus, § 7874 deters
corporate inversions. It was expected in 2008 to increase tax revenue by approximately $937
million over ten years.
This was revised in 2009 and created a bit more confusion over definition of “substantial business activity” and increased shareholder ownership to 80%.
Who is Inverting?
Why corporate inversions?
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Reason #1 Tax incentiveThe United States has the world’s highest corporate tax rates among OECD countries.
• Countries like Luxembourg, Ireland, and London, have used favorable tax incentives as a centerpiece in highly successful business attraction programs.
The United States ranked 69th among 185 countries in its tax burden, according to the World Bank’s June 2013 ease of doing business index.
According to a study done at University of Calgary found that the U.S. federal and state tax rate on new capital investment, considering credits and deductions, was 35% relative to a 19.5% OECD average and an 18% global average.
Reason #2 Competition Subpart F of the US tax code is seen as particularly burdensome by taxing US companies passive investment income (royalties, rents, interest, dividends)
Company moves as a result of other companies moving in a domino effect of inversion.
Political LandscapeLIBERAL
Corporate inversions are unpatriotic and corporations should pay taxes to their country of origin.
CONSERVATIVE
Forbidding corporate inversions would cost 42,000 U.S. Jobs and incentivize more corporations to move overseas.
Stop Corporate Inversions Act of 2014
Introduced May 2014 by Sander Levin
Problem: There has been a rapid increase in the number of U.S. based companies moving overseas to avoid paying U.S. tax rates
Cost: $20 Billion over ten years
Changes: Foreign company threshold from 20% to 50%
Prohibits: Inversions by U.S. companies if the foreign entity is managed and controlled in the United States by conducting significant domestic business activities in the United States
Stop Corporate Inversions Act of 2014NOTABLE AYES
Building Trades Unions
Transportation/Automotive Unions
Teachers Unions
Nancy Pelosi (Ca 12th)
NOTABLE NAYS
Banks and Bank Holding Companies
Defense Aerospace Contractors
John Boehner (Oh 8th)
Eric Cantor (Va 7th)
Paul Ryan (Wi 1st)
What do I think? Corporate inversions aren’t bad but they can be.
◦ In fact they’re quite natural, but need to be addressed.
Incentives◦ Drive growth and prosperity◦ Keep our U.S. Companies and◦ The United States Should Incentivize Foreign Companies to Come Here
◦ Our High Taxes Rates Vs. Their Low Rates◦ Or Through Other Business Opportunities (networking, growing business)
A Corporations Responsibility◦ Maximize the Dividends They Distribute to their Shareholders◦ Not to be patriotic
◦ Being patriotic may cost them money
Works Cited http://www.law.nyu.edu/sites/default/files/upload_documents/NYU-Annual-Survey-68-3-Simpson.pdf
http://dealbook.nytimes.com/2013/10/08/to-cut-corporate-taxes-a-merger-abroad-and-a-new-home/?_r=4
http://ctj.org/pdf/pre0414.pdf
http://themorningconsult.com/2014/08/pol-tax-inversions/
http://democrats.waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/CRS%20report%20on%20inversions.pdf
http://democrats.waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/113-0927%20JCT%20Revenue%20Estimate.pdf
Works cited http://democrats.waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/images/A_Spike_in_Corporate_Inversions_2.pdf
http://www.bloombergview.com/quicktake/tax-inversion
http://www.cnbc.com/id/101864543
http://democrats.waysandmeans.house.gov/press-release/new-crs-data-47-corporate- inversions-last-decade-2
http://fas.org/sgp/crs/misc/R42726.pdf
http://www.bloomberg.com/infographics/2013-10-28/u-s-profits-in-ireland-pile-up.html
http://taxfoundation.org/blog/us-corporate-tax-rate-fails-move-competition