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Congress is pivoting to tax reform, which if done correctly, should replace a list of draconian Obama-era regulations that went to extraordinary lengths to keep American companies from leaving the U.S.
Last year, drug manufacturer Pfizer’s proposed merger with foreign-based Allergan was thwarted after new regulations were issued by President Barack Obama’s Treasury Department, forcing Pfizer, for the second time, to abandon its attempted restructuring.
US - Companies - Pfizer
Why might U.S. companies like Pfizer want to move abroad?
One major reason is that U.S. corporate income tax rates are significantly higher than those of our major trading partners. Each year other countries lower their rates while the U.S. corporate tax rate remains stubbornly high.
Taxes - US - Business - Relative - Counterparts
High corporate taxes make U.S. business uncompetitive relative to their international counterparts. Under the burden of high taxes, they justifiably look for ways to reduce costs.
A common method is an “inversion,” where a U.S. business merges with a foreign competitor, locating their new headquarters in the lower tax country.
Years - Treasury - Regulation - Regulation - Rate
For 20 years now, Treasury has handed down regulation after regulation trying to enforce a stiflingly high corporate rate by making it more difficult and expensive for U.S. firms to invert.
The mid-1990s marked the beginning of a wave of inversions, fueled by a growing gulf between the high U.S. tax rate and our peer nations in the Organization for Economic Cooperation and Development.
Treasury - Vigor - Number - Inversions
Since the 1990s, Treasury has been regulating with increasing vigor, yet the number of inversions have continued to rise.
Like playing a game of inversion whack-a-mole, Treasury reacted to new inversion techniques with targeted regulations. While each new rule prohibited a new technique, another inversion would always surface soon after.
Treasury - Regulations - Trend - Inversion - Strategies
Most recently in 2014 and again in 2015, Treasury regulations continued the trend of targeting specific inversion strategies. Corporations continued to invert through 2016 when Treasury issued its most sweeping and...
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