Banks Make $1 Billion Helping US Firms ‘Move’ Overseas

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Investment banks are making big bucks helping, and even persuading, American companies to renounce their U.S. citizenship and “move” overseas.

These deals are known as inversions, and Wall Street banks – like JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup, among others – have collected nearly $1 billion in fees over the last three years to help companies move their address abroad, The New York Times said.

“In an inversion, a U.S. company sets up or buys another company in a country with a lower corporate tax rate and then calls the new country home — thereby dodging U.S. taxes it would otherwise have had to pay,” CNBC said.

While the practice is nothing new, a surge of corporate inversions this year has put it in the spotlight. (See: “Why Corporations Pay Less Taxes Than You.”)

Typically, inversions involve companies moving their legal address outside the U.S. Their American operations usually don’t change, at least not right away. But the impact on U.S. taxes is significant. The Times said:

These deals are expected to sap the United States Treasury of $19.46 billion over the next decade, according to the Joint Committee on Taxation. And that figure doesn’t take into consideration any future inversions. Nor does it account for the possible loss of jobs and revenue that will ostensibly move overseas over time.

Sure, it’s troubling that many U.S. corporations are eagerly attempting to “move” in an effort to dodge U.S. taxes, but it’s even more alarming that investment bankers are actively helping, and even encouraging, these companies.

“None of the major Wall Street banks, which received help from American taxpayers in the form of hundreds of billions of dollars in loans, appear to have declined on principle to take an assignment from a client seeking to move its corporate citizenship abroad,” the Times said.

President Obama has been critical of inversions, calling the companies “corporate deserters.” Obama supported legislation to limit tax breaks for U.S. companies that “move” abroad. But, according to The Associated Press, Republican senators blocked a bill that would have “prohibited companies from deducting expenses related to moving their operations to a foreign country.”

Republicans contend that Congress should reform America’s tax laws to be more inviting to corporations, rather than punishing companies for moving overseas. Although the U.S. has the highest corporate income tax rate (35 percent) in the industrialized world, many corporations don’t actually pay that rate after accounting for credits, exemptions and deductions, the AP said.

What do you think of American companies (and the banks that help them) that move overseas to dodge U.S. taxes? Share your thoughts below or on our Facebook page.

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Comments & discussion

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  • J J

    It is ridiculous that banks make this kind of money assisting companies to move their bases abroad BUT it’s equally ridiculous that Obama and the Democrat run federal government continues to keep tax rates high for corporations. If Obama would reform the tax codes, get rid of the loopholes and unneeded favors that corporations get. If the federal government would reduce its spending and lower tax rates for everyone including the corporations, these corporations wouldn’t see any need to move outside the borders of the US. AND the Democrat run federal government might even find that their revenue would increase as the American economy improves and jobs are created despite the Obama administration!! Obama promised no tax hikes on Americans, a promise he has broken, even if there isn’t an actual tax hike on Americans, the hikes on corporations ends up affecting the ‘average, ordinary, middle class’ Americans! And this Democrat run federal government seems to have the idea that they can just spend, spend, spend without consequences!! The ‘average, ordinary’ Americans feel the crunch as corporations pass on to the consumer any new taxes, fees or costs of governmental regulations or policies.

    • http://www.moneytalksnews.com/ Stacy Johnson

      Now, for the facts:
      Corporate tax rates weren’t increased by the Obama administration. The max rate for corporations has been 35 percent for at least 12 years. So the Bush administration was equally ridiculous in keeping tax rates high. Reagan was even more so: when he was president, the max rate was 46 percent.

      You can see historical corporate tax rates in this IRS publication: http://www.irs.gov/pub/irs-soi/02corate.pdf

      Tax reform: Exactly one year ago, July 30, 2013, Obama proposed corporate tax reform, including closing loopholes, coupled with infrastructure spending. It was first criticized, then ignored by Republicans.

      You can read about it in this Reuters story: http://www.reuters.com/article/2013/07/30/us-usa-obama-idUSBRE96T0F820130730.

      The corporate loophole that allows American companies to “pretend” to move overseas is supported by the financial services industry, which leans heavily Republican.

      You’re incorrect in saying Obama didn’t raise tax rates on Americans. Taxes have been substantially increased for Americans filing jointly earning more than $250,000 annually.

      As for spend, spend, spend: The Federal deficit is projected to fall to $492 billion this year, about what it was when Obama took office. That’s far below the record $1.4 trillion deficit of 2009, which occurred largely because of the recession he inherited.

      In 2009, the deficit was nearly 10 percent of GDP. If this year’s estimate is accurate, the deficit will fall to 2.8 percent of GDP. This will be the 5th consecutive year of a declining ratio of deficit spending to GDP. You can read about that in this bloomberg article: http://www.bloomberg.com/news/2014-04-14/u-s-deficit-cut-almost-one-third-to-492-billion-cbo.html.

      The last time the United States ran a budget surplus, spending less than it took in, was the final four years of the Clinton presidency.

      These are all facts: useful when having conversations about money, or just about anything else.

      • TeeTime

        Another fact-averse republican has been schooled by someone who can quote their sources for the facts. I read your column consistently and appreciate your efforts to inform the unenlightened….myself included. Thank you.

        • http://www.moneytalksnews.com/ Stacy Johnson

          Thanks, Tee Time!

      • Liz

        Bottom line America knows that the welfare state has grown too big and is given way too much off the backs of working Americans. When those on welfare won’t work because they can actually “make” more staying unemployed and sucking off the system it’s long past due to make a change. (And yes one of them is my niece…from her own words.) And it’s not noble, patriotic or whatever you want to call it to continue giving an ever increasing amount of taxes to a government that won’t make the hard decisions to cut the fat. The only way is for them to do with less. Common sense to those of us working, budgeting and having to do without because WE can’t afford it.

        • http://www.moneytalksnews.com/ Stacy Johnson

          I’ve heard this exact argument for nearly 40 years. Same words. The unfortunate reality is helping those who deserve it often entails helping those who don’t.

          What I’ve heard much less often over the years: Complaints that the U.S. spends a full 25 percent of it’s budget on defense. While many other countries devote a larger percentage of their budgets to social welfare programs, when it comes to guns, no other country on earth is remotely close.

          Interestingly, those lambasting welfare are often the same as those who want to spend unlimited amounts on guns. This is what’s always been a mystery to me.

          • Liz

            I don’t mind helping…i’m all about a hand-up, not a hand-out, I donate time and money to charitable institutions. What I see and have first hand experience with–I’m not spouting rhetoric–is the majority of those getting hand-outs are not trying to get more education, skills, volunteering etc to better themselves to try and get out of that state. They are content to keep accepting money the easy way and that is what I have a problem with.

            As far as the military, a good offense is a strong defense. Historically other countries have looked to us as the one to call on when help is needed. And isn’t that a form of social welfare on a much grander scale?

          • http://www.moneytalksnews.com/ Stacy Johnson

            Indeed it is, Liz! Which is why I wonder why it’s so infrequently discussed.

  • Ed Boyd

    JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup… do those names ring a bell? Same fine folks that were selling “D” mortgage back paper as “A” paper. When discovered, basically replied “Oops!” Thus fanning the fires of the real estate meltdown/bubble burst! Aren’t the cute!!?

  • James Hazelton

    One billion $$$ over three years by divided by four top manger groups is chicken feed, 250 million would not cover bonuses, incentives and perks paid to these guys over a three year period. One billion is the tip of the iceberg. The “Times” should audit the auditor who proffered this very low number…

  • ron

    not sure but I hear from you libs tax business(1%) more . And now you are amazed that they are moving out of the country Like I have said 10% of 100 mill is better than 40% of nothing

    • http://www.moneytalksnews.com/ Stacy Johnson

      Great point, ron! Why don’t you try that with your taxes? Send in 10%, and attach a note telling the IRS that 10% of your income is better than nothing.

      The point: Corporations shouldn’t have access to tax avoidance tactics the rest of us don’t have. Period. The only reason they do is because of lobbying money. Most of it comes from the financial services industry and goes to Republican lawmakers.

      The interesting question is how you and others so often defend a system that’s acting against your own best interests. If the government needs X amount to function, and corporations avoid paying their fair share, the government has to either collect it from you or borrow it. Since both alternatives make your life worse, why would you insist on allowing corporations to skate? That’s not right or left. In my mind, it’s simple logic.

      • ron

        stacy see your point . But if you were paying 30% and they are talking of raising the tax again . Now you pay real estate tax federal and state unemployment part of the employees ss and medicare tax (and a point is there are 151 taxes on loaf of bread.) next you pay taxes on the companies profit then they pay dividends from the profit and when you get your dividends you are taxed so double tax ???? I am not saying do not pay your taxes but when you see your money going to people sitting on their ass and the government paying out millions for illegals . But they are doing it in france not sure what other countries are changing and they are moving out of the country for lower taxes . Point is cut spending not raising taxes.

        • http://www.moneytalksnews.com/ Stacy Johnson

          Also a good point, Ron. Believe me, I’m not a fan of taxes, and I am a fan of cutting wasteful spending. (Who isn’t?) But why support corporations paying less, or even nothing, when they’re benefiting from the infrastructure, defense and other services you and I pay for?

          The banks named in this article would have gone bankrupt were it not for the American taxpayer. The companies they’re assisting to move overseas wouldn’t exist if not for the American consumer. Helping themselves to our country’s benefits and dodging the bill for those benefits may be legal, but it’s definitely not right.

          The only reason it’s legal is because the people we elected and pay to represent us are representing wealthy companies instead. They’re leaving us twisting in the wind.

          Many of the representatives that support these loopholes happen to be Republican. But this isn’t a party issue. It’s a taxpayer issue. I’m a taxpayer. I actually 30 percent of every dollar I earned in federal taxes last year. In the meantime, Apple makes $500 million in profits every week. They paid 16 percent. I’m pissed about that. I don’t understand why everyone isn’t.

          • ron

            stacy I agree with you on not being a fan of taxes. But if lets say we let say all imports have to have all the same restriction our companies have on them .type in pollution in china how do we compete with that . And then add taxes on that. Here is what would be great all companies that we import from must have the same standards we have or tax the hell out of them . Second no taxes for manufacturing companies . Because they if they hire say a hundred people making 50 grand a year at 30% that would be million and a half in taxes. that does not include the money the company pays in federal and state unemployment taxes and matching ss taxes. And I think I said before there are 151 taxes on a loaf of bread . the question is, is it better to have a mill and a halve in taxes or nothing. but remember the
            The top 1% of US taxpayers pay almost as much in federal income taxes as the entire bottom 95%, and half of that bottom group paid no taxes at all in 2010 not yelling just not sure how to make the words smaller

          • http://www.moneytalksnews.com/ Stacy Johnson

            lol. The words are fine, ron.

            I like this idea. Since I employ 5 people, does that mean I don’t have to pay taxes as long as they do?

            I’m not sure if your numbers are accurate, but if the top 1 percent pay as much in taxes as the bottom 95 percent, that’s OK, as long as they earn more than the bottom 95 percent.

            Our views aren’t that far apart. Like you, I hate high taxes and government waste. All I’m asking for is a level playing field.

            Want to get mad about what corporate America is legally doing? Watch this video of Jon Stewart.

            http://thedailyshow.cc.com/videos/ehvwjx/inversion-of-the-money-snatchers

          • ron

            stacy I looked at jon stewart but he is like rush limbuger one sided reporting .

          • Jason

            “why support corporations paying less, or even nothing, when they’re benefiting from the infrastructure, defense and other services you and I pay for?”

            Corporations are not people and should not be treated as people. At some point the money earned by a company will be distributed to the owners of that company. At that point the earnings should be taxed as regular income. That is why I’m not pissed about corporate taxes. I have no problem with eliminating corporate taxes all together.

            I am pissed that there is an investor class that gets to pay special tax rates. I am pissed that people like Warren Buffet (17.2 %) and Mitt Romney (14.1%) pay a lower percentage than I do despite the fact that they make millions more than me. I believe that all earnings should be taxed as regular income and Social Security and Medicare taxes should also be applied to every dollar earned.

  • Judy

    The point of this article was to point out inversions by US corporate entities, as well as the investment bankers going “Oops” -again. I recently became aware of these actions when it became news worthy that Walgreens is in the process of accomplishing this tax reduction maneuver. Since I had previously been a steady customer of Walgreens, after learning of their actions, I have quit patronizing their very convenient nearby location and unsubscribed from their weekly emails. They have also been informed of the “why” of my actions. Alone, my action means nothing to them, but that one thing in combination with paying attention to what’s happening financially and politically in this country, maybe some day things will begin to slowly change. I’m always amused when discussions are quickly reduced to party affiliation. Whether Republican, Democrat or Independent, the only thing that matters is to remain open minded and educate ones self with the facts. Thank you, Stacey, for the pertinent facts, for staying on point and for MoneyTalks. Love it.

    • http://www.moneytalksnews.com/ Stacy Johnson

      Thanks, Judy!

    • ponce

      Another point needs to be made concerning the Walgreens move. If Walgreens does this, will CVS and Rite-Aid be far behind? How will they be able to compete successfully if Walgreens is allowed to skate on their taxes? I see a future where activist investors, such as Carl Icahn, press CVS and Rite-Aid management to move overseas or face dismissal by the shareholders. Soon every company will have to off-shore their headquarters!

  • ponce

    Fiscal conservatives like me have long argued that the double taxation of dividends is wrong. I would point out that companies that move their headquarters overseas to avoid the payment of U.S. corporate taxes render the double taxation argument moot. I would support legislation that removes any special tax treatment for dividends paid to investors by these “inverted” companies, tax them at ordinary rates! Would go so far as to prohibit these companies from being included in investors 401K or IRA, either simple or Roth. Why should this income be allowed to skate, low-tax or tax free, when other companies are paying?