Number: RL31444
Title: Firms That Incorporate Abroad for Tax Purposes: Corporate "Inversions" and "Expatriation"
Authors: Donald J. Marples, Government and Finance Division 
Abstract: Over the past several years, reports indicate that an increasing number of U.S. firms have altered their structure by substituting a foreign parent corporation for a domestic one. Such "inversions" typically involve creation of a new foreign corporation in a country with low tax rates (a "tax haven") that becomes the parent of the firm's foreign and U.S. component corporations. A chief motive for inversions is apparently savings by firms on their U.S. corporate income tax. One source of savings is tax on a firm's foreign income: the United States taxes corporations chartered in the United States on both U.S. and foreign income but taxes foreignchartered corporations only on their U.S.-source income. An inversion can thus potentially reduce a firm's U.S. taxes on foreign income. Other tax savings apparently result from "earnings stripping," or the shifting of U.S.-source income from taxable U.S. components of the firm to the tax-exempt foreign parts.
Pages: 15
Date: March 11, 2008