Corporate Inversion

Today’s post is by Randy Russon, founder of TOPCFOS

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So, what is corporate inversion? Investopedia defines corporate inversion as, “Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.” American companies using smart tax planning strategies look for opportunities to minimize their tax bill. Who wouldn’t, especially when the U.S. government is taking up to 35%, that’s one third, of their hard earned profits?

Corporate inversions has been a hot topic of discussion in the news for some time now. Reuters reported the following this past week:

“U.S. Treasury to tighten corporate tax inversion rules – letter

By Kevin Drawbaugh

WASHINGTON (Reuters) – The U.S. Treasury Department this week will clamp down further on tax-avoiding “inversion” deals done by U.S. companies with foreign rivals, according to a letter obtained by Reuters on Wednesday.

With a major inversion deal in the works between U.S. drug maker Pfizer Inc and smaller Irish competitor Allergan Plc, Treasury said in the letter, “Later this week, we intend to issue additional targeted guidance to deter and reduce further the economic benefits of corporate inversions”.

Details were not spelled out in the letter, which was addressed to four lawmakers, comprising U.S. Senators Ron Wyden and Orrin Hatch and Representatives Kevin Brady and Sander Levin.”

Corporate inversions are really nothing more than what individuals and firms do day in and day out – plan smart tax strategies to help minimize their tax burden. This is smart, wise and prudent. This brings up two points that I’d like to discuss in terms of planning smart tax strategies. The first point is called tax evasion and the second point is called tax avoidance. Tax evasion is illegal, because it simply means that a company is either cooking the books or filing false tax returns in an attempt to evade taxes. The second point called tax avoidance is completely legal. In other words, using the current tax code that Congress set up, companies plan effective tax strategies that are 100% legal that are designed to help them minimize their tax obligation.

So, there is absolutely nothing wrong with smart tax strategies that will help a company to avoid a heavy tax burden.

We hope you’ve enjoyed our Blog today. Please remember, TOP CFOS offers the finest CFO services to companies anywhere in the world and would love to be a part of your team. Feel free to reach out to us anytime. Your feedback is most welcome, and we invite you to share this post with friends and associates. Our contact information can easily be found here on our website, so give us a call today! Our next post will come from the Strategy category on our website and is entitled Competition Creates Efficiency. And, thank you for joining us!