Abuses and penalties of a corporate tax inversion

James G.S. Yang, Leonard J. Lauricella, Frank J. Aquilino

Research output: Contribution to journalArticle

Abstract

There is a serious problem in international taxation today. Many United States (U.S.) multinational corporations have moved abroad to take advantage of a lower tax rate in a foreign country. As a consequence, the tax base in the U.S. has been seriously eroded. This practice is known as “corporate tax inversion”. This paper discusses the abuses and penalties of this phenomenon. It is rooted in some deficiencies in the U.S. tax law. This paper points out that the U.S. has the highest corporate tax rate in the world. It imposes tax on worldwide income. It permits deferral of tax on foreign-sourced income until dividends are repatriated back to the U.S. As a result, it creates tax loopholes. This paper reveals six actual cases of corporate tax inversion. This practice has triggered the Congress to enact §7874, the Internal Revenue Service (IRS) to issue Notices IR 2014-52 and IR 2015-79, and the U.S. Treasury Department to promulgate TD 9761. This paper investigates some details of these penalties. This paper further demonstrates an example in determining the amount of tax savings by engaging in a corporate tax inversion. It also offers many strategies.

Original languageEnglish
Article number5
JournalInternational Journal of Financial Studies
Volume7
Issue number1
DOIs
StatePublished - Mar 2019

Fingerprint

Penalty
Corporate tax
Abuse
Tax
Income
Tax base
Corporate tax rates
Revenue
Multinational corporations
Savings
Tax rate
Dividends
International taxation

Keywords

  • Controlled foreign corporation
  • Corporate inversion
  • Foreign-sourced income
  • International taxation
  • Merger
  • Territorial income
  • U.S.-sourced income
  • Worldwide income

Cite this

@article{3db6f126f6444c30b97db63c754f0b69,
title = "Abuses and penalties of a corporate tax inversion",
abstract = "There is a serious problem in international taxation today. Many United States (U.S.) multinational corporations have moved abroad to take advantage of a lower tax rate in a foreign country. As a consequence, the tax base in the U.S. has been seriously eroded. This practice is known as “corporate tax inversion”. This paper discusses the abuses and penalties of this phenomenon. It is rooted in some deficiencies in the U.S. tax law. This paper points out that the U.S. has the highest corporate tax rate in the world. It imposes tax on worldwide income. It permits deferral of tax on foreign-sourced income until dividends are repatriated back to the U.S. As a result, it creates tax loopholes. This paper reveals six actual cases of corporate tax inversion. This practice has triggered the Congress to enact §7874, the Internal Revenue Service (IRS) to issue Notices IR 2014-52 and IR 2015-79, and the U.S. Treasury Department to promulgate TD 9761. This paper investigates some details of these penalties. This paper further demonstrates an example in determining the amount of tax savings by engaging in a corporate tax inversion. It also offers many strategies.",
keywords = "Controlled foreign corporation, Corporate inversion, Foreign-sourced income, International taxation, Merger, Territorial income, U.S.-sourced income, Worldwide income",
author = "Yang, {James G.S.} and Lauricella, {Leonard J.} and Aquilino, {Frank J.}",
year = "2019",
month = "3",
doi = "10.3390/ijfs7010005",
language = "English",
volume = "7",
journal = "International Journal of Financial Studies",
issn = "2227-7072",
number = "1",

}

Abuses and penalties of a corporate tax inversion. / Yang, James G.S.; Lauricella, Leonard J.; Aquilino, Frank J.

In: International Journal of Financial Studies, Vol. 7, No. 1, 5, 03.2019.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Abuses and penalties of a corporate tax inversion

AU - Yang, James G.S.

AU - Lauricella, Leonard J.

AU - Aquilino, Frank J.

PY - 2019/3

Y1 - 2019/3

N2 - There is a serious problem in international taxation today. Many United States (U.S.) multinational corporations have moved abroad to take advantage of a lower tax rate in a foreign country. As a consequence, the tax base in the U.S. has been seriously eroded. This practice is known as “corporate tax inversion”. This paper discusses the abuses and penalties of this phenomenon. It is rooted in some deficiencies in the U.S. tax law. This paper points out that the U.S. has the highest corporate tax rate in the world. It imposes tax on worldwide income. It permits deferral of tax on foreign-sourced income until dividends are repatriated back to the U.S. As a result, it creates tax loopholes. This paper reveals six actual cases of corporate tax inversion. This practice has triggered the Congress to enact §7874, the Internal Revenue Service (IRS) to issue Notices IR 2014-52 and IR 2015-79, and the U.S. Treasury Department to promulgate TD 9761. This paper investigates some details of these penalties. This paper further demonstrates an example in determining the amount of tax savings by engaging in a corporate tax inversion. It also offers many strategies.

AB - There is a serious problem in international taxation today. Many United States (U.S.) multinational corporations have moved abroad to take advantage of a lower tax rate in a foreign country. As a consequence, the tax base in the U.S. has been seriously eroded. This practice is known as “corporate tax inversion”. This paper discusses the abuses and penalties of this phenomenon. It is rooted in some deficiencies in the U.S. tax law. This paper points out that the U.S. has the highest corporate tax rate in the world. It imposes tax on worldwide income. It permits deferral of tax on foreign-sourced income until dividends are repatriated back to the U.S. As a result, it creates tax loopholes. This paper reveals six actual cases of corporate tax inversion. This practice has triggered the Congress to enact §7874, the Internal Revenue Service (IRS) to issue Notices IR 2014-52 and IR 2015-79, and the U.S. Treasury Department to promulgate TD 9761. This paper investigates some details of these penalties. This paper further demonstrates an example in determining the amount of tax savings by engaging in a corporate tax inversion. It also offers many strategies.

KW - Controlled foreign corporation

KW - Corporate inversion

KW - Foreign-sourced income

KW - International taxation

KW - Merger

KW - Territorial income

KW - U.S.-sourced income

KW - Worldwide income

UR - http://www.scopus.com/inward/record.url?scp=85067699460&partnerID=8YFLogxK

U2 - 10.3390/ijfs7010005

DO - 10.3390/ijfs7010005

M3 - Article

AN - SCOPUS:85067699460

VL - 7

JO - International Journal of Financial Studies

JF - International Journal of Financial Studies

SN - 2227-7072

IS - 1

M1 - 5

ER -