As the FT has noted, following reports in Tax Analysts:
A growing number of US companies are set to save hundreds of millions of dollars in tax by relocating to Europe after completing takeovers on the continent.
Some of the biggest mergers and acquisitions so far in 2013 have involved so-called “tax inversions” — where a US acquirer shifts overseas, to Europe in particular, to pay a lower rate. These deals have come at a time when politicians in Washington have been increasing their calls for corporate tax reform.
Of course this is legal. Let's get the obvious point out of the way first. But then let me make the next obvious point which is that the last time that US corporations made a serious habit of this - when inversions to Bermuda peaked in about 2003 - the US took action to stop the abuse.
Don't rule that out this time either, although I'm not predicting how or when: others more expert in the US scene will need to do that.
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Like inverted toe nails that are allowed to grow this could become a lot worse and very painful. Also, they can cause a lack of balance that leads to accidents. Have we been here before?
In a former life I acted as a auditor for US companies who have operations in the UK and Europe. US companies who are head-quartered in New York or California pay effective rates of corporate tax in excess of 30% on their profits, so many have looked to the UK and Ireland to shift profits out of the US.
Depressingly I have seen a number of private equity backed US groups look to use to the UK as a ‘shop window’ for their non-US operations. Our extensive tax treaty network and ‘light touch’ self assessment seem to invite all manner of tax driven corporate restructuring. At lot of it seems to be led by a certain four firms!
We have a real chance now to work with other developed economies like the US, in developing a unitary approach to corporate taxation. If we could tax profits where the economic activity occurs rather than where the transactions are processed, the world would be a fairer place.
Tax justice is not just about taking on island tax heavens, it’s also about us recognising the UK and Ireland’s role in cheating other developed economies out of their share.
Agreed – entirely – but that is why I am now working on unitary taxation issues as well as other such, much broader, issues and have always done so
This is interesting from a contributor to comments section on Bill Black’s piece on the Naked Capitalism”
http://www.nakedcapitalism.com/2013/08/bill-black-the-fbis-2010-mortgage-fraud-report-reveals-why-the-banksters-love-holder.html
“from Mexico says:
August 15, 2013 at 7:10 am
What possible conclusion can one draw from Bill Black’s nuts and bolts analysis other than that the criminals have seized control of the state?
………………….
Bill Clinton pardoned Rich – and get this! – before Rich was even tried and convicted. There are extensive interviews of the lead U.S. Federal Prosecutor in the case, Morris Weinberg, Jr., throughout Stealing Africa. But the one where Weinberg describes his reaction when he received the news that Clinton had pardoned Rich is most poignant. Weinberg struggles mightily to understand how Clinton could have done such a thing. The story begins here at minute 42:13”
http://www.youtube.com/watch?v=WNYemuiAOfU&feature=player_detailpage&t=2533
Towards the end it refers to tax evasion by mispricing under the OECD arms length principle and suggests that the OECD are ineffective in dealing with abuses.
It does make one wonder whether there are other abuses that simply aren’t reported, because the auditors appointed are more “accommodating”.