
James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Author: James F. McDonough
Date: August 4, 2014

Of Counsel
732-568-8360 jmcdonough@sh-law.comCorporate inversions, in which a U.S.-based multinational acquires a smaller, foreign firm in order to re-domicile in a new, lower-tax country, have become a serious issue in American politics recently. Now, it appears that this issue may be a powerful motivator in the upcoming midterm House and Senate elections this November, according to The Wall Street Journal
A renewed push coming from the White House brought the issue even further into the public spotlight, alongside a coordinated drive from the Democratic party to effect legislation that will limit or halt the practice, the news source explained. Many Republicans agree that the issue should be addressed, but are halting bills that would curb the practice, hoping instead for a complete overhaul of the corporate income tax. These right-wing politicians note that the U.S. has the highest on-paper corporate income tax rate in the developed world. They say that they haven’t seen any proposals from the White House that would solve the problem.
Democrats have made a number of proposals that would alter the corporate tax code, including one that would change the requirement regarding the acquired company’s ownership share of the joint company that is created in an inversion, according to the Journal. Currently, the requirement is that the foreign company’s shareholders must be given at least a 20 percent share in the new company, meaning that it is frequently in the best interests of shareholders in the U.S. company to give up a portion of their shares in exchange for a significantly lower tax burden. A proposal from Sen. Carl Levin, D-Michigan, would raise this requirement to 50 percent.
“This is an issue that understandably gets people very angry,” Rep. Chris Van Hollen, D-Maryland, told the news source. “If Republicans are going to oppose our efforts in this area, they are going to have to explain why they are shielding American corporations that are deserting the U.S. in order to dodge their obligations to the country and American taxpayers.”
It seems that 2014 is the year of corporate tax inversions. Frank Brunetti and I have written about this topic at tremendous length due to all the new information brought to light about this subject. Find out more about the companies involved in corporate tax inversion and what Washington is doing about it here:
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