The Devil in the Details: How the Complexity, Costs, and Uncertainty of Treasury Regulations Encourage Corporate Inversion

Jessica Wilson

Volume 69, Issue 1, 387-429

Politicians and scholars have discussed reforming the corporate tax system for many years, especially with the emergence of certain tax avoidance practices like inversion and earnings stripping. While debate in this area has focused primarily on making changes to the high corporate tax rate and the taxation of worldwide income in the United States as ways to reverse the inversion problem, less discussion has focused on how the Treasury’s punitive approach via tax regulations can have the effect of encouraging, rather than discouraging, firms to relocate and shift profits overseas. Even considering the recent developments in international tax law under the Organisation for Economic Co-operation (“OECD”) Base Erosion and Profit Shifting (“BEPS”) project and recent rulings by the European Commission, which focus on corporate tax avoidance, a corporation can greatly reduce its tax and compliance burden by relocating to a foreign jurisdiction.

This Note examines the added burden of the U.S. Treasury’s approach to dealing with corporate inversion, with a detailed discussion of the Treasury’s 2016 anti-inversion regulations. Furthermore, this Note examines the costs and burdens associated with remaining a U.S. company for tax purposes, as compared to some of the costs and benefits associated with inversion. It argues that for many companies, the complexity and costs under corporate tax regulations in the U.S. provide an incentive for inversion separate from that of the high corporate tax rate and taxation of worldwide income.

Full Article