WASHINGTON — The number of U.S. companies reincorporating overseas has shot up considerably in recent decades. ADVERTISING WASHINGTON — The number of U.S. companies reincorporating overseas has shot up considerably in recent decades. Nearly twice as many companies, 47, have
WASHINGTON — The number of U.S. companies reincorporating overseas has shot up considerably in recent decades.
Nearly twice as many companies, 47, have shifted their corporate taxpaying obligations abroad since 2003 as in the previous 20 years, according to data from Congressional Research Service. And the acceleration is predicted to continue: At least another 12 are planning to do the same, according to CRS.
Why all the reincorporation, or tax inversion, as the practice is often called? The answer is corporate tax breaks.
There are a number of advantages inherent in reincorporating, including the likelihood of more fluid overseas acquisitions and lower borrowing rates because of increased cash piles. But when a company reincorporates, what it’s really doing is shifting its corporate citizenship, and when a company shifts its corporate citizenship, what it’s really doing is trying to pay less in taxes. The United States’ dreaded 35 percent corporate tax rate is plenty higher than that of, say, Britain, where it hovers closer to 20 percent.
Since reincorporating outside the United States is not only perfectly legal but also is likely to prove fairly lucrative, it’s hard to blame any company capable of making the move for trying to do so. It has, after all, resulted in the stockpiling of about $1 trillion in cash now believed to be sitting overseas as a result of such maneuvers.
But while the act of reincorporating abroad affords a company quite a few advantages, it also poses its fair share of problems. Most immediately, it means less money contributed to U.S. public coffers. Also, cash accumulated abroad often ends up sitting dormant, because reincorporated companies can neither invest in new projects in the United States nor return any of that extra dough to their shareholders.
The practice has earned a good deal of ire, too. Pharmaceutical giant Pfizer saw plenty of public and political backlash during its recent attempt to reincorporate overseas, and Walgreen’s, which is currently considering reincorporation, could face the risk of contradicting the “quintessentially American brand” that it has built.
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