Tax Inversion And The United States Government

But as we noted when we fact checked another of Obama's campaign statements— one from the 2010 midterm elections claiming then-House Republican leader John Boehner supported these deductions — there are no provisions in the tax code that specifically reward companies for building factories overseas or outsourcing jobs. There are, however, provisions that allow companies to avoid paying U.S. taxes on income generated by their foreign subsidiaries, at least until they bring those profits back to the United States. Both the president and legislator say these deferrals can encourage U.S.-based multinational companies to keep their foreign profits abroad and reinvest them in infrastructure overseas.”

With the advancements in the globalization of the economy, corporations are finding more ways to avoid the extraordinary tax rates set in place of The United States Of America. With the loss of revenue from large companies dodging taxes the government must make up for the loss by either raising taxes or changing the tax code. A recent company to avoid american taxes is Johnson Controls, a company that “…would not exist as it is today but for American taxpayers, who paid $80 billion in 2008…”(The Editorial Board). This use of American resources to get through tough times, and run to another county during an economic incline is an act that calls for reform in the American tax system. However congress has not passed any legislation to fix the

Companies in the US are finding clever deceiving ways to get what they want. Many companies like Google are investing offshore to avoid American taxes. Others like the company Monsanto uses

In recent years, more than twenty major American companies have left the United States and moved overseas to take advantage of lower tax rates, taking with them jobs and investments (Allen, D). The recent surge of interest in United States corporate inversions has triggered calls for Congress to put an end to the practice. A corporate inversion is when an American company merges with a foreign business and moves the combined business’s headquarters to the foreign country. Inversions are a problem because they are a symptom of a broken tax system that is hurting the United States economy. Furthermore, with the strict laws concerning inversions, some companies opt to direct profits to their foreign subsidiaries to take advantage of lower

Throughout years large American industrial companies have been running away from U.S. taxes, but there has been a new change. Companies such as Apple and Google have been affected by a change foreign countries are going through collecting higher taxes than before. It seems as if no longer can these companies get away with paying low taxes. This is happening because the European Commission have passed an order to collect high taxes. One example is Ireland who was ordered to collect fourteen billion dollars from Apple, which brought a surprise to this company. Companies have run out of places to run and pay one percent or less of taxes in foreign places, instead of paying back home.

Summa Holdings, Inc. v. Commissioner, Docket 16-1712 (6th Cir. Feb.16, 2017) is an interesting read, especially for export businesses. The transaction does not violate the Internal Revenue Code and provides substantial tax savings. The Court takes exception to the IRS’ use of the substance-over-form doctrine to “undo a transaction just because taxpayers undertook it to reduce their tax-bills.”

The main objective of many companies is to minimize their tax obligations. Jeffers (2014) discussed the reason of why companies adopt tax inversion strategies. The researcher indicated that the income maximization is a major reason of companies attempting to reduce their tax liability (pp. 100-101). Tax inversion strategies provide companies an advantage to lower income tax rate. Today, U.S. corporations renounce its U.S. citizenship and move to low-tax countries. Companies that reincorporate oversees are not obligated to pay U.S. taxes on earning income (p. 99). Many countries implement tax competition strategies to attract and retain businesses. Well-known companies, such as Exxon Mobil, Hewlett Packard, Tyco, General Electric, PepsiCo, etc. take benefits of tax shelter opportunities overseas (p. 102). Other benefits of the jurisdiction abroad are flexible banking laws and simplified litigation processes.

These inversion practices threaten to undermine our tax base, losing our country and government billions of dollars. The

However, the introduction of such a law becomes increasingly difficult when the companies being questioned are some of the largest and wealthiest in the world. In order to truly understand the stature of these companies, one would need to look into some of the statistics regarding them. Remarkably, according to Al Jazeera America “the largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes” if they had to declare all their overseas stockpiles, of around $2.1 trillion (“Al Jazeera America”). In addition, it found that “three-quarters of the 500 biggest companies utilize tax havens”. The top three offenders included Apple, General Electric and Microsoft. In many cases according to the report, the money is not being utilized to improve foreign economies. By this they mean to say that, U.S. businesses were not using their overseas profit to build factories and employ individuals. Instead, the overseas profit was a result of accounting tricks purposely implemented to benefit the business alone. To put all of this in perspective, the United States is losing billions of dollars to foreign economies. These taxes are being introduced into countries such as Ireland and Luxembourg. In other words the money that should be invested in the United States of America on public services, is being

The American Jobs Creation Act of 2004 decreased the tax liability for foreign earnings repatriated into the United States. This one time decrease lowered the maximum tax rate for overseas profit from 35 percent to 5.25 percent. However, due to foreign tax credits, the average tax rate corporations actually paid was 3.7 percent. The largest two types of corporations to repatriate their foreign earnings were the pharmaceutical and technology sectors. According to a news article written by Lynnley Browning in 2008, “the tax break gave each company claiming it an average $370 million in tax deductions” (Browning 2008). During 2004 the number of United States Corporations with foreign subsidiaries totaled around 9700. As stated above only 843 corporations participated in the Repatriation Tax Holiday. Of these 843, over 30 percent of total repatriation is accounted for by the pharmaceutical manufacturers alone. On average these 29 pharmaceutical manufacturers each claimed a tax deduction on overseas profits of $3 billion.

As a summer intern in PricewaterhouseCoopers international tax group, OECD’s new tax project, Base Erosion and Profit Shifting (BEPS), has been a hot topic in our group as well as the company for a long time, since the completion of all actions will take place very soon at the end of year 2015. Our international team deals with lots of international corporations which typically have subsidiaries in multiple countries and different elections for different tax purposes. Because majority of the countries in client’s family trees are participating countries in OECD’s BEPS project, a close attention need to be raised on the issues, impacts and solutions from the Base Erosion and Profit Shifting Action Plan. Therefore, in this issue and solution paper, I will primarily focus on my researches of issues and solutions related to the discussions about the Base Erosion and Profit Shifting action plan, including its background, why the project is important, the goal of the project, how does it affect tax rules, how does it affect companies, challenges for companies, threat to privacy, solutions/how to prepare, and finally the conclusion of OECD’s BEPS project.

The United States is in a recession; it has been facing some of the worse economic times since the Great Depression in the 1930’s. One option to fix the economy is to change the corporate tax rate. To lower it or to raise it, that is the question economists have been speculating. America's high corporate tax rate and worldwide system of taxation discourages U.S. companies from sending their foreign-source revenue home, which makes U.S. companies defenseless to foreign acquisition from the international opponents (Camp). Corporations and United States citizens have been fighting for a tax reform, which would hopefully help the American economy; either by lowering the corporate tax, or by raising the tax.

The actions of multinational corporations (MNCs), which derive from their morally dubious goals, may be completely legitimate within a capitalist society. One of these actions that will be examined in this essay is the use of tax havens, as a way of avoiding higher tax liability. This paper will utilise the case study of Apple’s tax avoidance, in examining the legitimation of a company’s goal of profit maximisation, a goal that is against the moral/social consensus

Recently we have seen Organisation for Economic Cooperation and Development (OECD) come up with reforms in the international tax rules called the Base Erosion and Profit Shifting (BEPS). Multinational firms use the double tax avoidance and transfer pricing routes to avoid taxes. India has been trying to limit the benefit such entities gain by signing treaties with countries like Singapore and entering into negotiations with countries like Mauritius, which are considered as tax heaven. Now OECD is planning to come up with multilateral conventions aimed at preventing treaty abuse. Currently revenue losses from BEPS are conservatively estimated at $100-$240 billion, which is roughly 4-10% of the global corporate income tax (CIT).

As mentioned, the globalization of markets and the rapid development of communication systems have increased the presence of trades between companies under common control. However, other factors have also helped highlight the subject. Factors like the increase of service provided within MNE’s, the continuous trading activity and the use of financial instruments have increased the amount of trade between associated parties. Political forces have also assisted in the development of transfer pricing regulations, especially now during this economic crisis as governments try to increase their income through tax collection. For example, a parent company could pay less income tax in the US by determining a higher transfer price from the product it purchases from its subsidiary located in China. Since China’s corporate income tax is 25% and the US tax rate is 35%, this arrangement would generate a higher income at the subsidiary in China and less overall income tax payment for the financial group in question. Nevertheless, such arrangements can be prevented by tax authorities in the US, since according to Section 482 of the Internal Revenue Code “the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or