In an economic environment
plagued by slow top line growth, companies are seeking to expand their profits
and maximize shareholder value by any means necessary. One of such means is
corporate inversion; a move which helps corporations seeking favorable tax
treatment re-domicile their headquarters in a country with more favorable
corporate tax laws like Bermuda or Ireland. In the United States, companies
face up to 35% in marginal corporate tax, furthermore, US companies are taxed
on profits earned overseas when they try to repatriate those funds. These
punitive tax structures entice companies such as Medtronix and Burger King to
seek tax haven in less demanding tax environments. The US Treasury Department
recognizes corporate inversion as a major problem; even though the act has the
effect of increasing corporation’s bottom line and stock prices, it does so at
the expense of the tax base on which the US government relies. As such, the
Treasury Department has sought action to discourage companies from
participating in inversion activities. These measures ensure that it will be
far more difficult for U.S. companies to incorporate overseas. These concerns
shed light on the much needed corporate tax structure reform, concerns about
the inability of legislators to come to an agreement on these issues lead
doubters to hold misgiving on the effectiveness of the Treasury Departments.
However, what this means for investors is added value for companies who chose
to follow the inversion strategy and save on their tax bill.
