For the last 30 years, the trend of “corporate inversion” has been growing, and it’s now costing the U.S. government billions of dollars every year in lost taxation. Corporate inversion is the relocation abroad of U.S. firms that have merged with a foreign partner, usually to the new partner’s country of origin. Therefore, the newly-created company only pays corporation tax at the rate regulated by the country located to. Under IRS regulations, corporate tax, although globally regulated, is only levied when the revenues of the new company enter the U.S.; the current level of U.S. corporation tax is 39%, the highest in the Organization for Economic Co-operation & Development (OECD) group of countries, which includes Canada, Australia, Japan, the UK and Germany.
Recent examples of this practice include Coca-Cola Enterprises (a drinks bottler) and CF Industries (a fertilizer manufacturer) – both are now relocating to the UK (and their 20% tax rate) after mergers with non-U.S. companies. U.S. crane manufacturing firm Terex, formerly of Westport, Connecticut, announced on August 11 they had merged with a Finnish firm and would be relocating to a small town near Helsinki, Finland. However, Walgreen last year were forced to abandon their plans for a European relocation – due to a severe customer backlash.
The IRS attempted to tighten rules last September in an effort to reduce corporate inversion, but with only limited success. If you believe this practice highlights the IRS’s inability to properly regulate the corporate tax system, please Like & Share this post.
