Corporate Inversions

Topics: Corporation, Tax, United States Pages: 1 (663 words) Published: April 16, 2015
Corporate Inversion is defined as a company’s reincorporation overseas enabling reduction in tax burden on income earned abroad. When a significant portion of a company’s income is from foreign sources, then corporate inversion is the ideal strategy to implement; that is because such income is taxed both abroad and in the company where it is incorporated. The winning corporate inversion strategy would be for a company which has selected a country with lower tax rates and less intricate corporate governance requirements. The motivation behind Corporate Inversion strategy is to reduce the tax burden. Explaining this motivation, there is a way for a company to reincorporate abroad. This can be done by letting a foreign company buy the operations, hence dissolving the old corporation. Although the motivation is to reduce tax burden, but corporate inversion is not tax evasion as long as it does not involve misrepresentation of information on returns or any other illegal activity to conceal profits and other disclosures. Imagining myself as the CEO of an American corporation I would opt for changing its legal residence from the United States of America to another country. This would allow my company to get benefit and advantage of a more favorable tax treatment being offered by the new home country. Right from the word go, there is an advantage: most countries do not have a worldwide corporate income tax system. The United States of America makes sure that any income earned by my corporation in the USA is taxed regardless of the source of income i.e. no matter from which country the income comes from, whether it is domestically earned or it comes from abroad. So, if being the CEO of the corporation I invert and start operating in the new home country from where the majority of income comes from, then I will still be needing to pay tax but that would only be on the income that is earned in the United States of America. Another promising aspect from the lens of the CEO...
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