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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.