Paul L. Caron

Thursday, August 7, 2014

Kleinbard: 'Competitiveness' Has Nothing to Do With Inversions

Edward D. Kleinbard (USC), 'Competitiveness' Has Nothing to Do With It:

The recent wave of corporate tax inversions has triggered interest in what motivates these tax-driven transactions now. Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study.

The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second "repatriation tax holiday" of the sort offered by Congress in 2004.

Scholarship, Tax | Permalink


Suppose an Asian sub distributes $100 in profits to its Parent and Parent invests that in a struggling U.S. sub. How much more can a UK Parent invest than a U.S. parent? If the UK can invest the full $100 but the U.S. can only invest $65, is it fair to say that the US offers an "anti-competitive" U.S. tax environment for Corp Parents compared to the UK?

Posted by: YoGabbaGabba | Aug 7, 2014 6:36:43 PM

A proper SoCal Taxprof should cover the Hollywood Tax Beat.

Posted by: YoGabbaGabba | Aug 7, 2014 6:40:08 PM