Tax Inversion Case Study

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1. Tax inversion: Tax inversion or corporate inversion is a largely used American term where the companies located in United States of America shift their headquarters to low tax countries or tax haven countries in order to avoid higher taxes. This is done by either shifting their headquarters from the country they are domiciled or by way of merger/ takeover of a company situated in tax haven nation.
How does Tax inversion works:
Under tax inversion, nothing but only the legal structure of the company changes. A new company is incorporated in a tax haven nation like that of Bermuda or Cayman Islands which impose no tax on income earned by corporate. The shares of the erstwhile company are issued to the new corporate company. This changes the legal form of the earlier company and it becomes the subsidiary of the foreign company. This implies that the profits earned by the company earlier domiciled in United States to pass on its income directly to the parent company thereby avoiding taxes in US of its foreign operations as well.

2. Gain in case of tax inversion: A company situated in US is taxed by USA’s internal revenue code on the income earned by its foreign subsidiaries. This gives ample incentive to the corporations situated in US to shift their base to foreign nations. By this …show more content…

Tax avoidance or tax evasion: Tax inversion is a legal form of tax avoidance. There is a thin line between tax avoidance and tax evasion. In tax evasion, the facts of the company or the income are hidden from the law authorities and thereby the tax implication is lowered. The income is subdued from the authorities by illegal means or the operations of the company lay hidden in some other form. However, in case of tax avoidance, the legal loopholes in the law are taken advantage of. The facts are disclosed as it is under tax avoidance. However, with expert tax understanding, the legal loopholes are exploited to the advantage of the company and income is saved from the impact of

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