Have you wondered why corporations with some of the industrial world's lowest tax rates, are shifting ownership abroad?
"Competitiveness" Has Nothing to Do With It Edward D. Kleinbard
ABSTRACT
The recent wave of corporate tax inversions has triggered interest in what motivates these taxdriven transactions now. Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate,
which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.'s former vice-chairman) as a case study.
The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms' increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second "repatriation tax holiday" of the sort
offered by Congress in 2004.
-- "Competitiveness" Has Nothing to Do With It Edward D. Kleinbard
ABSTRACT
The recent wave of corporate tax inversions has triggered interest in what motivates these taxdriven transactions now. Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate,
which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.'s former vice-chairman) as a case study.
The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms' increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second "repatriation tax holiday" of the sort
offered by Congress in 2004.
The paper can be downloaded at http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2476453 with a free registration.
Thanks to a NY Times article, "Report Suggests Tax Burden Is Not So Heavy."
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