Practical and Policy Considerations in Corporate Inversion Transactions

Abstract:     
U.S. businesses typically own both U.S. subsidiaries and foreign subsidiaries. These U.S.-based businesses are tempted to consider reversing this structure, creating instead a structure in which a foreign company is the ultimate owner. The foreign-based business would then own both U.S. subsidiaries and foreign subsidiaries. This reversal process is termed an inversion transaction.

These U.S.-based businesses might seek to forestall the determents of having a U.S.-based business, including transfer pricing audits, foreign tax credits limitations, and a partial disallowance of interest expenses. Craig M. Boise and James C. Koenig examine corporate inversion transactions, focusing on practical and policy considerations. They examine the specifics of these tax determents and U.S. legislative developments.

Mr. Boise and Mr. Koenig begin with a discussion of the U.S. worldwide tax regime and describe inversion transactions. In this regard, Mr. Boise and Mr. Koenig discuss the manner in which inversion transactions work, including the earnings strip option and the treaty benefit option. They then examine the Treasury's view of inversion transactions, including problem areas such as earnings stripping and subpart F. Mr. Boise and Mr. Koenig discuss the proposed anti-inversion legislation and inversion transactions.

Keywords: Taxation, foreign subsidiaries, foreign-based business, corporate inversion transactions, inversion, expatriation, Bermuda, Cayman Islands, asset transaction, cross-border merger

JEL Classifications: K22, K34

Accepted Paper Series