Tax Inversions Essay

999 WordsApr 30, 20154 Pages
Tax Inversions Corporate executives have one goal, to maximize earnings for the corporation’s shareholders. The strategy executives adopt to increase earnings is what makes a corporation stand out amongst competitors. One controversial way a corporation can work towards maximizing earnings is a tax inversion, which involves merging with or acquiring a foreign company and relocating the company’s headquarters outside of the United States of America. A tax inversion works best for companies with a large percentage of sales occurring out of the country. When the company’s headquarters are relocated out of the country, the company will no longer have to pay U.S. taxes on sales made outside of the U.S. Tax inversions have recently become a major issue with the recent proposed mergers and relocations of Medtronic and Covidien Plc to Ireland and Burger King and Tim Horton’s to Canada. According to Pat Regnier’s article, “Everything You Need to Know About Companies Leaving America for Taxes,” the Obama Administration has enacted new rules regarding tax inversions. The United States treasury will enforce an “80% rule” which requires the American company’s value to be less than 80% of the newly formed entity (Regnier). All in all, tax inversions will continue to have benefits and consequences to a variety of different parties and a common ground will likely not be reached regarding this issue. As aforementioned earlier, a tax inversion involves one company merging with or acquiring a foreign company and relocating the U.S. based corporation’s headquarters out of the country and into a different country with lower tax rates. The process is called an inversion because the smaller, foreign firm becomes the headquarters of the global firm. The larger, American firm is now the foreign company in relation to the new corporate headquarters. Tax inversions are a form of

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