Articles Posted in Tax inversion

The Treasury Department and the Internal Revenue Service have issued new rules to discourage American companies from moving their headquarters abroad to lower their tax rates. The new rules make that more difficult by curtailing companies’ ability to avoid United States tax rates in  locations where they lack substantial business activity.

American companies have been  reduce their tax liabilities through  corporate inversion — purchasing smaller foreign competitors  to move their headquarters to countries with more favorable tax rates than the United States.

Treasury Secretary Jacob J. Lew has called on Congress to act on inversions. Substantive and long term changes will have to come from Congress in the form of legislation.

Suddenly, two successful U.S. corporations Burger King and Valeant Pharmaceuticals Inc. have announced their “inversion plans” to buy Canadian companies and move their  seller’s base to Canada in order to keep from paying U.S. tax rates.  The question is whether this is legal tax avoidance or illegal tax evasion. Burger King is seeking to buy the Canadian coffee and donut chain Tim Hortons Inc.

By moving to the lower tax jurisdiction, the inversion deals allow the companies to save money on foreign earnings and the moneys kept abroad.

Valeant Pharmaceuticals International Inc. which was based in California, combined with Canada’s Biovail Corporation and re-located to Canada, now paying a 5% tax rate.