Saturday, July 26, 2014

Foreign Law Firms Touting Tax Inversion Services to American Companies

Two blog posts ago, I reported that corporations are defecting to countries with lower corporate tax rates than the U.S. and hoarding assets overseas to avoid paying taxes to Uncle Sam through acquisitions of companies in those countries. Among those tax haven countries are Ireland, Great Britain, and the Netherlands. The trend has risen so much that that law firms in those countries are now promoting their services to American corporations to perform the legal work to make the inversions happen.

When these inversions happen, profits are hoarded in these tax haven countries. These profits are then reinvested in these countries and not in the United States. Should these companies divert any profits to the U.S., the companies face corporate income tax consequences. Therefore, these companies are keeping the profits out of the U.S. As a result, jobs are being created elsewhere and not in the U.S.

The FairTax does not tax income, which means no tax on repatriated profits. If we have the FairTax, U.S. companies wouldn't have to look overseas for tax havens. In fact, the U.S. would become a tax haven for foreign companies. As a tax haven, foreign companies would find it advantageous to move investments and operations to the U.S., thus creating jobs. Since that's not happening, the U.S. is losing out on potential economic expansion.

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