.jpg/250px-US_tax_inversions_(1983_to_2016).jpg){kind=small}
.jpg)
Community hub
Recent from talks
Contribute something to knowledge base
Content stats: 0 posts, 0 articles, 1 media, 0 notes
Members stats: 0 subscribers, 0 contributors, 0 moderators, 0 supporters
Subscribers
Supporters
Contributors
Moderators
Hub AI
Tax inversion AI simulator
(@Tax inversion_simulator)
Hub AI
Tax inversion AI simulator
(@Tax inversion_simulator)
Tax inversion
A tax inversion or corporate tax inversion is a form of tax avoidance where a corporation restructures so that the current parent is replaced by a foreign parent, and the original parent company becomes a subsidiary of the foreign parent, thus moving its tax residence to the foreign country. Executives and operational headquarters can stay in the original country. The US definition requires that the original shareholders remain a majority control of the post-inverted company. In US federal legislation a company which has been restructured in this manner is referred to as an inverted domestic corporation, and the term "corporate expatriate" is also used, for example in the Homeland Security Act of 2002.
The majority of the less than 100 material tax inversions recorded since 1993 have been of US corporations (85 inversions), seeking to pay less to the US corporate tax system. The only other jurisdiction to experience a material outflow of tax inversions was the United Kingdom from 2007 to 2010 (22 inversions); however, UK inversions largely ceased after the reform of the UK corporate tax code from 2009 to 2012.
The first inversion was McDermott International in 1983. Reforms by US Congress in 2004 halted "naked inversions", however, the size of individual "merger inversions" grew dramatically; in 2014 alone, they exceeded the cumulative value of all inversions since 1983. New US Treasury rules in 2014–16 blocked several major inversions (e.g. 2016 USD$160 billion Pfizer–Allergan plc inversion, and the 2015 USD$54 billion AbbVie–Shire plc inversion), and the Tax Cuts and Jobs Act of 2017 (TCJA) further reduced the taxation incentives of inversions. As of June 2019[update], there have been no material US inversions post-2017, and notably, two large Irish-based tax inversion targets were acquired in non-tax inversion transactions, where the acquirer remained in their higher-tax jurisdiction: Shire plc by Japanese pharma Takeda for US$63 billion (announced in 2018, closed in 2019), and Allergan plc by U.S. pharma AbbVie for US$64 billion (announced in 2019, expected to close in 2020); in addition, Broadcom Inc. redomesticated to the United States.
As of June 2019[update] the most popular destination in history for US corporate tax inversions is Ireland (with 22 inversions); Ireland was also the most popular destination for UK inversions. The largest completed corporate tax inversion in history was the US$48 billion merger of Medtronic with Covidien plc in Ireland in 2015 (the vast majority of their merged revenues are still from the US). The largest aborted tax inversion was the US$160 billion merger of Pfizer with Allergan plc in Ireland in 2016. The largest hybrid-intellectual property (IP) tax inversion was the US$300 billion acquisition of Apple Inc.'s IP by Apple Ireland in 2015.
While the legal steps taken to execute a tax inversion can be complex as the corporations need to avoid both regulatory and Internal Revenue Service (IRS) hurdles in re-locating their tax residence to a lower-tax jurisdiction, simplified examples are available; such as provided in August 2014, by Bloomberg journalist Matt Levine when reporting on the Burger King tax inversion to Canada. Before the 2017 TCJA, U.S. companies paid a corporate tax rate of 35% on all income they earned in both the U.S., and abroad, but they obtained a credit against their U.S. tax liability for the amount of any foreign tax paid. Given that the U.S. tax rate of 35% was one of the highest in the world [citation needed], the corporate's maximum global tax liability should, therefore, have been 35%. This pre-TCJA U.S. tax system, was referred to as a "worldwide tax system", as opposed to the "territorial tax system" used by almost all other developed countries. Levine explained:
If we're incorporated in the U.S., we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada [who operate a "territorial tax system"], we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.
By changing its headquarters to another country with a territorial tax regime, the corporation typically pays taxes on its earnings in each of those countries at the specific rates of each country. In addition, the corporation executing the tax inversion may find additional tax avoidance strategies, called § Earnings Stripping tools, that can shift untaxed profits from the higher-tax locations (e.g. the U.S.), to the new lower-tax country to which the corporation has now inverted.
The following are notable events in the history of US and non-US corporate tax inversions:
Tax inversion
A tax inversion or corporate tax inversion is a form of tax avoidance where a corporation restructures so that the current parent is replaced by a foreign parent, and the original parent company becomes a subsidiary of the foreign parent, thus moving its tax residence to the foreign country. Executives and operational headquarters can stay in the original country. The US definition requires that the original shareholders remain a majority control of the post-inverted company. In US federal legislation a company which has been restructured in this manner is referred to as an inverted domestic corporation, and the term "corporate expatriate" is also used, for example in the Homeland Security Act of 2002.
The majority of the less than 100 material tax inversions recorded since 1993 have been of US corporations (85 inversions), seeking to pay less to the US corporate tax system. The only other jurisdiction to experience a material outflow of tax inversions was the United Kingdom from 2007 to 2010 (22 inversions); however, UK inversions largely ceased after the reform of the UK corporate tax code from 2009 to 2012.
The first inversion was McDermott International in 1983. Reforms by US Congress in 2004 halted "naked inversions", however, the size of individual "merger inversions" grew dramatically; in 2014 alone, they exceeded the cumulative value of all inversions since 1983. New US Treasury rules in 2014–16 blocked several major inversions (e.g. 2016 USD$160 billion Pfizer–Allergan plc inversion, and the 2015 USD$54 billion AbbVie–Shire plc inversion), and the Tax Cuts and Jobs Act of 2017 (TCJA) further reduced the taxation incentives of inversions. As of June 2019[update], there have been no material US inversions post-2017, and notably, two large Irish-based tax inversion targets were acquired in non-tax inversion transactions, where the acquirer remained in their higher-tax jurisdiction: Shire plc by Japanese pharma Takeda for US$63 billion (announced in 2018, closed in 2019), and Allergan plc by U.S. pharma AbbVie for US$64 billion (announced in 2019, expected to close in 2020); in addition, Broadcom Inc. redomesticated to the United States.
As of June 2019[update] the most popular destination in history for US corporate tax inversions is Ireland (with 22 inversions); Ireland was also the most popular destination for UK inversions. The largest completed corporate tax inversion in history was the US$48 billion merger of Medtronic with Covidien plc in Ireland in 2015 (the vast majority of their merged revenues are still from the US). The largest aborted tax inversion was the US$160 billion merger of Pfizer with Allergan plc in Ireland in 2016. The largest hybrid-intellectual property (IP) tax inversion was the US$300 billion acquisition of Apple Inc.'s IP by Apple Ireland in 2015.
While the legal steps taken to execute a tax inversion can be complex as the corporations need to avoid both regulatory and Internal Revenue Service (IRS) hurdles in re-locating their tax residence to a lower-tax jurisdiction, simplified examples are available; such as provided in August 2014, by Bloomberg journalist Matt Levine when reporting on the Burger King tax inversion to Canada. Before the 2017 TCJA, U.S. companies paid a corporate tax rate of 35% on all income they earned in both the U.S., and abroad, but they obtained a credit against their U.S. tax liability for the amount of any foreign tax paid. Given that the U.S. tax rate of 35% was one of the highest in the world [citation needed], the corporate's maximum global tax liability should, therefore, have been 35%. This pre-TCJA U.S. tax system, was referred to as a "worldwide tax system", as opposed to the "territorial tax system" used by almost all other developed countries. Levine explained:
If we're incorporated in the U.S., we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada [who operate a "territorial tax system"], we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.
By changing its headquarters to another country with a territorial tax regime, the corporation typically pays taxes on its earnings in each of those countries at the specific rates of each country. In addition, the corporation executing the tax inversion may find additional tax avoidance strategies, called § Earnings Stripping tools, that can shift untaxed profits from the higher-tax locations (e.g. the U.S.), to the new lower-tax country to which the corporation has now inverted.
The following are notable events in the history of US and non-US corporate tax inversions:
Recent media
Recent media