Tax Inversion … Huh ?

Clever nick names and acronyms often catch hold. While never certain of the source (many proclaim authorship) a recent “Cool” tag/nick name has garnered much attention. After this quick post, at your next cocktail party or other gathering, you can toss this one out with confidence.

Tax Inversion Defined

The world is a much smaller place today. Companies are free to merge and purge globally, and they do frequently. More importantly, tax rates are different in different parts of the world, just as they are in different states in the USA.

1. Merging or buying a publicly traded TAX PAYING company in a different country
2. Possible relocation of the companies domicile to said country
3. Lower tax rate/base of the newly acquired company

These are the keys to a Tax Inversion.

Bottom Line: Buy or merge with a company that resides in a country with a lower tax rate than your current country.

Money Stuck In Overseas Bank Accounts

With a much smaller world and foreign trading partners, frequently international trading companies have foreign bank accounts that are stuffed full of cash. Often times there is a tax hit to the company if it brings this cash back into its home country. This makes a foreign purchase more appealing.

Target On Your Back

In a world that if it sounds to good to be true it is, this from President Obama:

 They’re technically renouncing their U.S. citizenship, they’re declaring their base someplace else even though most of their operations are here. You know some people are calling these companies ‘corporate deserters.’

There is talk of a retroactive tax to stop future and penalize companies that have already completed a “Tax Inversion” as of this writing, nine major corporations.

While a lightening rod of views on the cause, effect, and how to handle this tax strategy, we remain silent and neutral, but interested on how this plays out.

Now you can throw out “Tax Inversion” confidently at your next dinner party! haha

Have a Great Day!

John A. Kvale CFA, CFP

PS Recently it appears there are specific investments being made toward companies that may have a “Tax Inversion” possibility …. Nahhhh … Dinner party talk only please !