By Derek Hunter
The phrase “tax inversion”
probably could not sound drier. But this esoteric tax maneuver is garnering
considerable press, and not just in the finance pages, but in the mainstream news as well.
A tax inversion is a
transaction in which a U.S.-based multinational enterprise (MNE) re-domiciles
abroad by merging with a foreign corporation. The goal is to swap the
relatively high U.S.
corporate tax rate (39%) with the
lower tax rate of the foreign corporation’s jurisdiction, frequently Ireland
(12.5%) or the United Kingdom (21%). Besides
the billions of dollars saved (or lost, from Treasury’s perspective) in U.S.
taxes, nothing else changes about the corporation.
So what’s all the fuss? First,
it smacks of unfairness – big corporations, with the help of their well-paid lawyers,
avoid taxes while the little guys make up the difference. It is also a great
political issue: President Obama can call an inversion “unpatriotic,” while Republicans can use it as an example of why
we need to lower tax rates to be more competitive.
