A recent article from Alvarez & Marsal titled Recent Trends in Inversions does a great job of chronicling the history of U.S. Congressional efforts to prevent U.S.-organized corporations from reorganizing outside the U.S. ("inverting") as a means of reducing the U.S. tax burden on their international operations. The article includes a brief summary of recent administration and Congressional proposals to tighten the shackles on U.S. corporations even further in the wake of recent news that Pfizer intends to invert as part of its proposed acquisition of AstraZeneca.
The history of U.S. anti-inversion legislation gives some context for why we, in our role as tax advisors, often recommend that a company with significant international growth prospects consider forming a separate international holding company for the future foreign operations, rather than placing those operations in or under a U.S. corporation. In many cases, the client will choose to forego this planning, typically because the costs to implement such a structure are too high given the company's resources and ability to forecast future profits. But if the company ultimately succeeds internationally, the benefits of having implemented an international holding company structure at the outset will nearly always outweigh the cost by many multiples. Further tightening of the anti-inversion rules will only magnify those benefits.
Some members of Congress argue that erecting stronger fences to keep U.S. corporations from "escaping" is not the solution, and that real corporate tax reform is needed to create a more competitive U.S. tax environment. (See article here.) The approach of true corporate tax reform may ultimately prevail. But until the specific reforms are known and have strong bi-partisan support, the U.S. remains a very unattractive tax home for international business operations.
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