What Is Corporate Inversion?

With liberal trade restrictions and globalization, companies and economies around the world have become more financially intertwined. For the most part this has stimulated economic growth around the world, creating more affordable consumption opportunities. The being said, there still remains a big loophole in the tax system between countries in the global economy. For many multinationals including Apple, they have moved their most profitable subsidiaries overseas to reap the tax advantage unavailable in the United States. As this continues to occur, the United States remains to have the highest corporate taxes around the world of 35%. If you factor in state taxes, this can be closer to 40%. To put this in perspective, the average tax rate

Since corporate taxes are so high in the U.S., many firms elect to invert operations overseas to reduce their tax burdens. By definition, corporate inversion is a strategy of reincorporating a company overseas in order to reduce the tax burden on income earned abroad. Traditionally, inversion was used by companies that generate revenue overseas, since that income is subject to taxes domestically and abroad. The undertaking of this strategy can be done by legally restructuring your corporate headquarters overseas or through the acquisition of a previously established company already operating overseas. Inversions are particularly attractive for companies that own a lot of intangible assets including patents, trademarks, brand names or intellectual property. As a result, technology and pharmaceutical companies have been particularly drawn to corporate inversion. However, corporate inversion does not work in all industries and for firms with many tangible assets, it is almost infeasible. For example, a car manufacturer in the United States produces sells and holds many of its assets through brick and mortar

Tax inversions can result in a greater flow of income into the United States and as a result expand operations at a lower cost than its competitors. Since many of these firms, which have pursued tax inversions, are some of the largest in the world, they influence many economic factors. If a company has more cash on hand, then they are more likely to expand and create employment opportunities which help the economy grow. Likewise, when a company’s profits increase, shareholders wealth does as well because stock prices are determined by expected and actual earnings a company