Corporate Inversion is defined as a company’s reincorporation overseas enabling reduction in tax burden on income earned abroad. When a significant portion of a company’s income is from foreign sources, then corporate inversion is the ideal strategy to implement; that is because such income is taxed both abroad and in the company where it is incorporated. The winning corporate inversion strategy would be for a company which has selected a country with lower tax rates and less intricate corporate governance requirements.
The motivation behind Corporate Inversion strategy is to reduce the tax burden.Explaining this motivation, there is a way for a company to reincorporate abroad. This can be done by letting a foreign company buy the operations, hence dissolving the old corporation.
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Although the motivation is to reduce tax burden, but corporate inversion is not tax evasion as long as it does not involve misrepresentation Of information on returns or any other illegal activity to conceal profits and other disclosures. Imagining myself as the CEO of an American corporation I would opt for changing its legal residence from the United States of America to another country.This would allow my company to get benefit and advantage of a more favorable tax treatment being offered by the new home country.
Right from the word go, there is an advantage: most countries do not have a worldwide corporate income tax system. The United States of America makes sure that any income earned by my corporation in the USA is taxed regardless of the source of income i. E. No matter from which country the income comes from, whether it is domestically earned or it comes from abroad.So, if being the CEO of the corporation I invert and start operating in the new home entry from where the majority of income comes from, then I will still be needing to pay tax but that would only be on the income that is earned in the united States of America.
Another promising aspect from the lens of the CEO is that the said corporate inversion would not change the operational structure of the company. It would practically just be the addition of a small office in my company’s new foreign home. So in effect it would not be hampering American employment figures and American people will not lose jobs.For the company, such corporate inversion would result in significant paving as the result of a lower tax burden. It will also benefit my employees in terms of increased remuneration and other perks as the tax benefit passes on.
If I had been the President of America, I would have objected to Corporate Inversions. This is because would not see them as legal, but I would primarily see the same as wrong. In my opinion as the President, corporate inversions are actually a negative with regards to the loyalty of American Corporations.
