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This week the U.S. Senate Committee on Finance held a hearing entitled “The U.S. Tax Code: Love It, Leave It, or Reform It!” where the focus was on the corporate tax maneuver called inversions.
Inversions occur when corporations purposely renounce their American citizenship, usually by merging with a foreign corporation and reincorporating in a low- or no-tax country (also called a tax haven) in order to be treated as a foreign corporation and escape U.S. tax liabilities. However, in reality, the move is just on paper — these corporations can in fact be owned by up to 79 percent of the former shareholders of the U.S. company and keep their business operations here in America.
U.S. Senator Ron Wyden (D-Oregon), chairman of the Finance Committee, referred to tax inefficiencies and loopholes like inversions as “chronic diseases,” “infections” and “contagions” since they are eroding the U.S. tax base and allowing these multinational corporations to escape paying their fair share of government services. The exact words of Sen. Wyden were: “The inversion virus now seems to be multiplying every few days.”
There has definitely been a growing rash of attempted inversion deals. The largest inversion deal to date, the drug maker AbbVie (formerly Abbott Laboratories) recently agreed to purchase a European competitor, Shire, with the goal of reincorporating in Britain. Other health-related companies have announced plans to invert such as Medtronic, Pfizer and Mylan.
Even “America’s drugstore” – Walgreens — may soon be a Swiss company, as it is in the process of determining whether to reincorporate there. This decision is particularly virulent since Walgreens receives around a quarter of its income from taxpayer supported health programs like Medicare and Medicaid. (The full list of companies that have inverted can be found here, which is much broader than the recent spate of health-related defections.)