{ "id": "R43568", "type": "CRS Report", "typeId": "R", "number": "R43568", "active": true, "source": "CRSReports.Congress.gov, EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "summary": null, "typeId": "R", "sourceLink": "https://crsreports.congress.gov/product/details?prodcode=R43568", "source": "CRSReports.Congress.gov", "type": "CRS Report", "retrieved": "2021-07-14T04:04:06.122894", "source_dir": "crsreports.congress.gov", "id": "R43568_24_2021-06-17", "formats": [ { "format": "PDF", "url": "https://crsreports.congress.gov/product/pdf/R/R43568/24", "sha1": "8af1164e5f617f1f195b8fcd3265079ea106959d", "filename": "files/2021-06-17_R43568_8af1164e5f617f1f195b8fcd3265079ea106959d.pdf" }, { "format": "HTML", "filename": "files/2021-06-17_R43568_8af1164e5f617f1f195b8fcd3265079ea106959d.html" } ], "active": true, "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "date": "2021-06-17" }, { "source": "EveryCRSReport.com", "id": 593566, "date": "2019-03-12", "retrieved": "2019-12-20T19:46:41.256703", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate \u201cinversions\u201d or \u201cexpatriations\u201d: instances where U.S. firms reorganize their structure so that the \u201cparent\u201d element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings, and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the locations of many of the newly created parent corporations.\nThese types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act; P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. \nHowever, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. If the original U.S. shareholders owned less than 60%, the firm was not considered as inverting.\nTwo features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. The U.K. joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax in 2009. At the same time, the U.K. also lowered its rate (from 25% to 20% by 2015). Inverted firms could reduce worldwide taxes by stripping taxable earnings out of the new U.S. subsidiary, largely through allocating debt to that subsidiary.\nSoon after, several high-profile companies indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This \u201csecond wave\u201d of inversions again raised concerns about an erosion of the U.S. tax base. Chiquita and AbbVie canceled their plans in the wake of 2014 Treasury regulations, but Burger King and other firms completed merger plans. Pfizer subsequently terminated its planned merger with Allergan after Treasury regulations issued in 2016. Evidence suggests that these Treasury regulations have been an important factor in subsequently decreasing these merger-related inversions.\nTwo policy options had been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. In December 2017, P.L. 115-97 (popularly known as the Tax Cuts and Jobs Act) lowered the corporate tax rate as part of broader tax reform which some argued would slow the rate of inversions. Other tax reform proposals suggested that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There were concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. P.L. 115-97, while moving in some ways to a territorial tax, also instituted a number of measures aimed at combatting profit shifting, including a global minimum tax on intangible income that limited the tax benefits of a territorial tax. \nThe second option is to directly target inversions. The 2017 act included several provisions that discouraged inversions. In addition, further anti-inversion provisions have been introduced, most recently H.R. 5108 and S. 2459 in the 115th Congress, to treat all firms in which former U.S. shareholders have more than 50% ownership (or in which management and control is in the United States) as U.S. firms. These bills also provided that debt could also be allocated to the U.S. member of a worldwide operation in proportion to the U.S. ownership of assets.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R43568", "sha1": "505b0f387f2bb451964f6136dcbe7be654af06b4", "filename": "files/20190312_R43568_505b0f387f2bb451964f6136dcbe7be654af06b4.html", "images": {} }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R43568", "sha1": "3f46d3dcec21832d4f6bf12f49e0f8e17a19c890", "filename": "files/20190312_R43568_3f46d3dcec21832d4f6bf12f49e0f8e17a19c890.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4764, "name": "Foreign Investment" }, { "source": "IBCList", "id": 4804, "name": "Business & Corporate Taxation" }, { "source": "IBCList", "id": 4825, "name": "International Tax" } ] }, { "source": "EveryCRSReport.com", "id": 463394, "date": "2017-08-17", "retrieved": "2017-08-21T14:17:08.499971", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate \u201cinversions\u201d or \u201cexpatriations\u201d: instances where U.S. firms reorganize their structure so that the \u201cparent\u201d element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the location of many of the newly created parent corporations.\nThese types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act, P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. \nHowever, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. \nTwo features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. Recently, the UK joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax. At the same time the UK also lowered its rate (from 25% to 20% by 2015). \nSeveral high-profile companies had more recently indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This \u201csecond wave\u201d of inversions again raises concerns about an erosion of the U.S. tax base. Chiquita and AbbVie have canceled their plans in the wake of new Treasury regulations, but Burger King and other firms are continuing merger plans. Pfizer subsequently terminated its planned merger with Allergan after Treasury regulations issued in 2016.\nTwo policy options have been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. Some have suggested that lowering the corporate tax rate as part of broader tax reform would slow the rate of inversions. Although a lower rate would reduce the incentives to invert, it would be difficult to reduce the rate to the level needed to stop inversions, especially given the effect of the revenue loss on the budget. Other tax reform proposals suggest that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There are concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. \nThe second option is to directly target inversions: H.R. 1931, H.R. 3434, and S. 1636 would treat all mergers as U.S. firms if the U.S. shareholders maintain control of the merged company, as well as impose other restrictions. S. 1673 would tax accumulated earnings of inverting firms. H.R. 1932 and S. 851 would include anti-inversion provisions as part of a broader proposal to address tax havens and deferral. H.R. 3603 would address earnings-stripping of inverted corporations. H.R. 3424 would disallow federal contracts for inverted firms. H.R. 1451 and S. 586 would make major changes in the tax treatment of foreign source income and tighten existing anti-inversion rules. \n\nOn September 22, 2014, the Treasury announced regulatory measures to limit some of the benefits of inversions. Additional regulatory measures were announced on November 19, 2015, and April 4, 2016. Evidence from news accounts and statistical data suggest that inversions have declined.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43568", "sha1": "14a1d431e5a83c39ba506417f2adc55b668f9e38", "filename": "files/20170817_R43568_14a1d431e5a83c39ba506417f2adc55b668f9e38.html", "images": {} }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43568", "sha1": "85b21a5eeb52de56e03c9882db9fbe49134ea373", "filename": "files/20170817_R43568_85b21a5eeb52de56e03c9882db9fbe49134ea373.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4764, "name": "Foreign Investment" }, { "source": "IBCList", "id": 4804, "name": "Business & Corporate Taxation" }, { "source": "IBCList", "id": 4825, "name": "International Tax" } ] }, { "source": "EveryCRSReport.com", "id": 452077, "date": "2016-04-27", "retrieved": "2016-05-24T19:15:51.401941", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate \u201cinversions\u201d or \u201cexpatriations\u201d: instances where U.S. firms reorganize their structure so that the \u201cparent\u201d element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the location of many of the newly created parent corporations.\nThese types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act, P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. \nHowever, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. \nTwo features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. Recently, the UK joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax. At the same time the UK also lowered its rate (from 25% to 20% by 2015). \nSeveral high-profile companies had more recently indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This \u201csecond wave\u201d of inversions again raises concerns about an erosion of the U.S. tax base. Chiquita and AbbVie have canceled their plans in the wake of new Treasury regulations, but Burger King and other firms are continuing merger plans. Pfizer subsequently terminated its planned merger with Allergan after a second round of Treasury regulations.\nTwo policy options have been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. Some have suggested that lowering the corporate tax rate as part of broader tax reform would slow the rate of inversions. Although a lower rate would reduce the incentives to invert, it would be difficult to reduce the rate to the level needed to stop inversions, especially given the effect of the revenue loss on the budget. Other tax reform proposals suggest that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There are concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. \nThe second option is to directly target the merger inversions. H.R. 415, H.R. 207, S. 198, S. 174, and the President\u2019s FY2017 budget proposal would treat all mergers as U.S. firms if the U.S. shareholders maintain control of the merged company, as well as impose other restrictions.\nH.R. 1809 and S. 975 would disallow awarding federal contracts to inverted firms. S. 922 and H.R. 1790 would restrict inversions, and include broader provisions to limit the ability to use interest deductions to reduce income, and tax foreign source income currently. On September 22, 2014, the Treasury announced regulatory measures to limit some of the benefits of inversions. Additional regulatory measures were announced on November 19, 2015, and on April 4, 2016.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43568", "sha1": "3fcbb3546d1ebee267b4b2eab4c3eee2c4b40f2a", "filename": "files/20160427_R43568_3fcbb3546d1ebee267b4b2eab4c3eee2c4b40f2a.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43568", "sha1": "5bd6b09a14c50dcef8b7cc9a97a5a64188b8b77a", "filename": "files/20160427_R43568_5bd6b09a14c50dcef8b7cc9a97a5a64188b8b77a.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 2586, "name": "Foreign Investment and Outsourcing" }, { "source": "IBCList", "id": 571, "name": "Business Taxation" } ] }, { "source": "EveryCRSReport.com", "id": 447809, "date": "2015-11-30", "retrieved": "2016-04-06T17:51:10.127843", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate \u201cinversions\u201d or \u201cexpatriations\u201d: instances where U.S. firms reorganize their structure so that the \u201cparent\u201d element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the location of many of the newly created parent corporations.\nThese types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act, P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. \nHowever, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. \nTwo features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. Recently, the UK joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax. At the same time the UK also lowered its rate (from 25% to 20% by 2015). \nSeveral high-profile companies had more recently indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This \u201csecond wave\u201d of inversions again raises concerns about an erosion of the U.S. tax base. Pfizer initially failed in its merger, and Chiquita and AbbVie have canceled their plans in the wake of new Treasury regulations, but Burger King and other firms are continuing merger plans. Pfizer subsequently completed a merger in November 2015 that was exempt from the new regulations.\nTwo policy options have been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. Some have suggested that lowering the corporate tax rate as part of broader tax reform would slow the rate of inversions. Although a lower rate would reduce the incentives to invert, it would be difficult to reduce the rate to the level needed to stop inversions, especially given the effect of the revenue loss on the budget. Other tax reform proposals suggest that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There are concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. \nThe second option is to directly target the merger inversions. H.R. 415, H.R. 207, S. 198, S. 174, and the President\u2019s FY2016 budget proposal would treat all mergers as U.S. firms if the U.S. shareholders maintain control of the merged company, as well as impose other restrictions.\nH.R. 1809 and S. 975 would disallow awarding federal contracts to inverted firms. S. 922 and H.R. 1790 would restrict inversions, and include broader provisions to limit the ability to use interest deductions to reduce income, and tax foreign source income currently. On September 22, 2014, the Treasury announced regulatory measures to limit some of the benefits of inversions. Additional regulatory measures were announced on November 19, 2015.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43568", "sha1": "002ed3bac9d7ba218c3ba4d792594ff89fed46b9", "filename": "files/20151130_R43568_002ed3bac9d7ba218c3ba4d792594ff89fed46b9.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43568", "sha1": "1b1d8947a134235658056e2774e9bdf20d5e7d28", "filename": "files/20151130_R43568_1b1d8947a134235658056e2774e9bdf20d5e7d28.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 2586, "name": "Foreign Investment and Outsourcing" }, { "source": "IBCList", "id": 571, "name": "Business Taxation" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc814813/", "id": "R43568_2014Nov03", "date": "2014-11-03", "retrieved": "2016-03-19T13:57:26", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20141103_R43568_f523b1c66c173c7aa1d319c07faa6ceff29bca7e.pdf" }, { "format": "HTML", "filename": "files/20141103_R43568_f523b1c66c173c7aa1d319c07faa6ceff29bca7e.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc462140/", "id": "R43568_2014Sep25", "date": "2014-09-25", "retrieved": "2014-12-05T09:57:41", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "This report discusses relevant portions of the U.S. corporate income tax system and how inversions have commonly been structured. It also looks at how Congress and Department of the Treasury have reduced the benefits of inversions, including The American Jobs Creation Act, as well as post-2004 inversions and treasury regulations, and policy options.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20140925_R43568_7525e6646b903494e1b9f9869d08e7cb5a02a69b.pdf" }, { "format": "HTML", "filename": "files/20140925_R43568_7525e6646b903494e1b9f9869d08e7cb5a02a69b.html" } ], "topics": [ { "source": "LIV", "id": "Corporate finance", "name": "Corporate finance" }, { "source": "LIV", "id": "Corporate liquidations", "name": "Corporate liquidations" }, { "source": "LIV", "id": "Corporate mergers", "name": "Corporate mergers" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc462056/", "id": "R43568_2014Sep03", "date": "2014-09-03", "retrieved": "2014-12-05T09:57:41", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "This report begins with a brief discussion of relevant portions of the U.S. corporate income tax system before examining how inversions were commonly structured. The report then looks at how Congress and Department of the Treasury have reduced the benefits of inversions. The report concludes with an examination of methods that remain to invert and policy options available to prevent or limit these inversions.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20140903_R43568_a0a79ec0b2c6fb97563ff4fedb7325da2cd5c420.pdf" }, { "format": "HTML", "filename": "files/20140903_R43568_a0a79ec0b2c6fb97563ff4fedb7325da2cd5c420.html" } ], "topics": [ { "source": "LIV", "id": "Taxation", "name": "Taxation" }, { "source": "LIV", "id": "Corporation taxes", "name": "Corporation taxes" }, { "source": "LIV", "id": "Tax evasion", "name": "Tax evasion" }, { "source": "LIV", "id": "Tax reform", "name": "Tax reform" }, { "source": "LIV", "id": "Tax policy", "name": "Tax policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc306449/", "id": "R43568_2014May27", "date": "2014-05-27", "retrieved": "2014-07-08T21:53:44", "title": "Corporate Expatriation, Inversions, and Mergers: Tax Issues", "summary": "This report discusses relevant portions of the U.S. corporate income tax system and how inversions have commonly been structured. It also looks at how Congress and Department of the Treasury have reduced the benefits of inversions, including The American Jobs Creation Act, as well as post-2004 inversions and treasury regulations, and policy options.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20140527_R43568_c47fca3220e96ed49f7dd1402d2014a7f3af44b5.pdf" }, { "format": "HTML", "filename": "files/20140527_R43568_c47fca3220e96ed49f7dd1402d2014a7f3af44b5.html" } ], "topics": [ { "source": "LIV", "id": "Corporate finance", "name": "Corporate finance" }, { "source": "LIV", "id": "Corporate liquidations", "name": "Corporate liquidations" }, { "source": "LIV", "id": "Corporate mergers", "name": "Corporate mergers" } ] } ], "topics": [ "Economic Policy" ] }