One of the big issues facing America today is the concern over tax revenue and how it relates to needed income to keep things running. Many have decried the ways in which major corporations do their best to legally reduce the taxes they owe by citing foreign profits, but there is another loophole that allows companies to pay less in US taxes while pulling in profits. This loophole is known as “inversion.”
How Inversion Allows American Companies to Reduce US Tax Liability
Basically, inversion is a way for US companies to reincorporate overseas in an effort to reduce what they are paying in taxes. Inversion works when big companies buy assets from foreign companies. Now that they have these foreign company assets, they can reincorporate as companies in those countries — and make the argument that they aren’t truly American companies after all.
The idea is to reincorporate in countries with lower corporate tax rates. They also say that they aren’t US companies anymore and since they aren’t incorporated here, they hope to avoid some of the taxes they would normally pay. Some of the companies taking advantage of these loopholes are companies like AbbVie and Mylan. Chiquita, Medtronics, and Applied Materials are also companies that recently announced merger deals with foreign companies that would allow them to reincorporate.
Why Are Some Upset?
Many lawmakers and citizens are upset about this prospect for a number of reasons. First of all, this means less tax revenue for the United States. It comes at a time when there are budget issues and concerns about how to pay for the things that the American people have come to expect from their government.
Another reason there is the outrage over the inversion loophole has to do with the fact that many companies have taken advantage of the resources here in the United States, and many of them are profitable already. It seems like a slap in the face to many ordinary Americans that these companies can build great businesses, and then reduce the way they give back, all so that profits margins can increase even more, and so that executives can line their pockets.
There is already a growing disquiet with the growing divide between corporations and “regular folks,” especially when it appears that corporations are gaining a great deal of influence in our governance. Do profitable companies looking to reduce their tax liability really need as much influence over the government as they have? There are those who think that corporations are gaining too much power and money, and not giving enough back.
On the other hand, of course, there are business leaders and corporate leaders who point out that they are just trying to increase value for the shareholders that they are beholden to. From a business standpoint, they are just trying to maximize their profits — and they aren’t doing anything illegal.
However, that might change. There has been some agitation to close the inversion loophole and keep the tax revenue of American companies in the United States. However, even with some of this interest in closing the loophole, some feel that the current deeply divided Congress won’t be able to actually accomplish anything.