Why corporate tax inversion rules are a moving target
Corporate tax inversions are an area of tax law that has brought recent scrutiny. Politicians call the practice "un-American," while many corporations embrace the practice as a legal way to reduce tax burden. In the past decade, as many as 45 companies have inverted — established a foreign tax domicile — including Troy-based Delphi Automotive PLC. But in September, the U.S. Department of Treasury issued new rules aimed at thwarting the practice. Local tax experts say most clients aren't participating in the activity, but curiosity is rising during immense government attention and increasing media coverage. The rule "is definitely having a dampening effect on cross-border M&A activity," said Sudip Datta, T. Norris Hitchman Endowed Chair of Finance at Wayne State University School of Business. "Every law (or rule) has unintended consequences."
Government officials say corporations participating in tax avoidance are hurting the country. Rep. Sander Levin said in May that participating in inversion is "undermining vital domestic investments." But tax experts claim the moves benefit shareholders. "U.S. shareholders are the beneficiaries of these tax benefits — and we're all shareholders, like it or not, through pension and investment funds," said Datta. "Either the government is losing and the shareholders are gaining or vice versa. Who makes better decisions about allocating funds?"
