Tax Inversions: Tax Savings Strategies for Corporations and What Political Calls for Tax Reform Mean

Posted on by Moskowitz LLP Posted in Business Law, Tax Planning & Compliance

Corporate inversion is defined as an international corporation reincorporating in a different country, changing from a U.S. corporation to an offshore jurisdiction that is usually a tax haven and therefore potentially reducing tax liability. U.S. Corporations have availed themselves to the policy and have reaped the rewards of lower tax jurisdictions. However, these tax inversions can be complex and are currently politically controversial. We will discuss the benefits of employing corporate tax inversions, including potential benefits for future shareholders and generating shareholder value, proposed legislation affecting corporate inversions (i.e., the Stop Corporate Inversions Act of 2014), and retroactive implications of tax reform.

I. How Inversions can occur:

  • a. stock transactions,
  • b. an asset transaction,
  • c. drop down transaction combining the two.

II. History of Inversions and the Laws Enacted to Curb Abusive Transactions

  • a. 1980s – corporate inversions begin as an obscure transaction but gain popularity (Several Fortune 500 companies take advantage of lower tax jurisdictions and increased shareholder value)
    • 1983: The McDermott Transaction and Sections 1248(i) and 163(j)
    • 1994: The Helen of Troy Transaction and Section 367(a) regulations,
    • Late 90s – 2000s and section 7874:
      • Sixty Percent Inversions,
      • Eighty Percent Inversions,
      • Substantial Business Activities and Congressional Intent:
        • Interpretation of Substantial Business Activities,
        • 2012 Temporary Regulations: The removal of the facts and circumstances test
  • b. Proposed Legislation:
    • Stop Corporate Inversions Act of 2014 & Supporters,
    • Retroactivity of legislation and effects.

III. Advising Shareholders:

  • a. Subpart F and CFC regulations affect domestic shareholders,
  • b. IRS reporting compliance,
  • c. Repatriating Funds
    • i. Loans
    • ii. Dividends

IV. Conclusion

Practice Areas: Business Organizations & Contracts, Corporate & Securities, International Tax, Tax Law
Online Media Type: Audio
Production Date: 08/26/2014 2:00 PM EDT
Level: Intermediate
Category: Standard
Duration: 1 Hours, 0 Minutes
Format: Online/Live