Why Companies in Minnesota and the U.S. Can Use Tax Inversion

Published On: 14th September 2014

From the internet

It has been see in Minneapolis and it may be happening again as Burger King is in talks to merge with the Canadian-based Tim Horton’s.

The practice is known as tax inversion and it is something that has been hot in the news lately. The question is why is it possible for companies to change their address so they can reduce their taxes?

This is actually a very good question because it is something that occurs through acquisition or merger.

Since 1982, American companies have been moving to foreign companies. A total of 11 have moved since 2012, according to a law professor at the University of Minnesota. A tax bill can be cut by hundreds of millions of dollars by making that move.

In the case of Medtronic making its deal with Covident, the merged company will be able to save $850 million by the end of 2018. This deal doesn’t mean that they won’t pay U.S. taxes at all. What it means is that they will only pay taxes on what they do in the U.S.

It is also not like a company can just pick up and leave the United States. There are procedures and rules that have to be followed in order to make a move.

Under U.S. tax law, it is a legal move and there are powerful people in the U.S. that want to have this rule changed. Obama has been recorded as saying that individual shave referred to these companies as “corporate deserters.” At least 20 percent of the new company must be owned by the foreign shareholders for the deal to be an allowable deal.

Some lawmakers want to make that requirement 50 percent.

One business law professor said that if 100 percent of the activities are carried out in the U.S., a company can’t just have a registered office in another country and say that the company isn’t American anymore.

While the corporate tax rate in the United States is 35 percent, most corporations do not pay that much anyway.

In Canada, the corporate tax rate is 26.5 percent. In Ireland, where Medtronic will have its headquarters, the corporate tax rate is 12.5 percent.

Nonetheless, this shows that a business cannot simply change its address in order to reduce their U.S. tax bill.

In fact, some experts state that people avoid paying taxes too. For instance, individuals come from out of state to shop at the Mall of America in order to avoid paying Minnesota sales tax. Everyone does like to save money, including the corporations that are moving their headquarters out of the U.S. However, many state that it isn’t fair to the many others staying in order to maintain their positions as United States companies, although they are doing so by choice.