Corporate Inversions Case Study

1784 Words 8 Pages
Stuart Casey
Professor Ryder
Corporate Inversions

Do you know what McDermott, Tyco, and Herbalife have in common? Even though they are all in different industries they have all taken advantage of the tax breaks that come with a corporate inversion. Tax inversions are a relatively new idea in the history of taxes. The first company to succeed in the modern form of inversions was an oil service and construction company located in Houston, Texas called McDermott. In 1984, McDermott did not buy a foreign subsidiary or merge with a foreign company to move “offshore”, but just moved its tax home to Panama. It would be another 10 years before the next company to complete the move overseas. This happened when a cosmetic company called Helen of
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corporations have to navigate to move their tax home overseas. “Section 7874 require companies that are seeking to change their parent companies 's country of incorporation to have 25 % of their employees, property, and income in that foreign country” (PWC). If they do not fit these requirements the new parent will be treated as a domestic corporation for US tax purposes, and the corporate inversion would be considered a failure because it did not achieve the goal of limiting the taxation by the United States. Section 4985 was included in the bill to achieve parity between its management and shareholders. If the company was able to arrange an inversion that passed the requirements of Section 367(a), the burden of the tax bill, being capital gains, is passed onto the shareholders that are not part of the company and do not officially own the stock but have options as a part of their compensation. Section 4985 imposes a 15% excise tax on the executives in the company that exercised their options either six months before or after the inversion transaction had taken place. These executives are taxed at the highest capital gains tax that year (Tax …show more content…
Before doing my research, my opinion on corporate inversion would be totally different than now. I would have said let the company move overseas, the company is trying to maximize shareholder wealth. This idea of course has become the major duty of corporate executives in the United States. But, moving the company overseas does not maximize the shareholder 's wealth, but actually takes aways some of their wealth. The company spends all of this money to be “acquired” by a foreign firm to reduce the taxes paid. This reduction is taxes is a savings of real money and cashf low that can be spent on other things to grow the company or pay a higher dividend through the the year. The problem to this idea is most of the 40 or so companies that have moved overseas in the past 20 years have not seen a larger stock price move than companies that are located here in the United States. Also, dividend payout has increased at the same rate or below the dividend increase in the domestic companies. So, the real people that benefit from an inversion transaction is the corporate executives and major shareholders of the company, who happen to be the same individuals who structure the deal. This is why Rep, Levin 's bill is so important. It would help align the executives benefit or loss with the common shareholders like you and I. And if

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