In the Time of the Shadow Bankers

Jack Rasmus

A practice and loophole that emerged around 2008, US corporate tax ‘inversions’–the latest version in a long list of US transnational corporation tax scams–have taken off in 2014. A tax inversion is set in motion when a US based corporation buys another company offshore and then manipulates the tax codes of both countries to extract the greatest net tax reduction.

The United Kingdom, Ireland, Switzerland and others are favorite locales for ‘inversions’ of late. And US corporations and industries at the forefront of this new wave are typically pharmaceutical, technology, cable tv, entertainment, medical equipment, finance, and related retail companies–with many others waiting in the wings as well.

Briefly, here’s how it works: After purchasing an offshore company, the US company then designates its global headquarters as located in the new country of its purchase. With its headquarters now outside the US, the company can now transfer profits made in the USA, via various ‘intra-company price transfer’ tricks, to the foreign based headquarters and country where effective tax rates are lower and where various US tax code offshore loopholes are available to US transnational corporations.

The US purchasing company can also transfer its offshore debt from the purchased company to its US operations in turn. The higher debt and resulting higher interest payments on that debt are deductible from US corporate taxes, according to US tax law. The ‘inversion’ deal thus provides a double tax cut advantage to the US corporation. But that’s only the beginning.

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