Abstract
During the 1990s and early 2000s, several large U.S. companies reincorporated abroad. Corporate expatriations can take many different forms. One form is a stock inversion.
In an inversion, a U.S.-based multinational corporate group forms a foreign subsidiary, typically in a country that imposes little or no corporate income tax. Then the group reorganizes. The new foreign subsidiary becomes the parent of the group, and the existing U.S. parent becomes a subsidiary. As the term suggests, the corporate structure inverts. The parent’s place of incorporation changes to a foreign country.
An inversion involves only a change in the group’s legal structure. It has little or no effect on the company’s operations. The group does not need to move its headquarters or its other business operations.
This article describes a typical stock inversion, using the 2001 Ingersoll-Rand reorganization as a model. The article examines how, under the law at that time, the transaction saved substantial taxes, immediately and into the future.
This article does not describe the history of inversions. Nor does it address all the tax policy issues associated with inversions. Many authorities have previously covered those topics. The purpose of this article is simply to explore the major U.S. international tax issues by analyzing one inversion.
The Ingersoll-Rand reorganization consisted of two main transactions: a merger, and an exchange of assets for stock. Sometimes this article refers to the two transactions combined as the “inversion.”
Part II of this article describes the transactions. Part II also explains some international tax concepts necessary to understand the purposes of the transactions. Part III analyzes the tax consequences of the transactions under the law that was in effect at the time. Part IV examines how the 2004 American Jobs Creation Act (AJCA) eliminated the potential tax benefits of inversions. Finally, Part V concludes that the AJCA has stopped inversions. However, the Act did not address some flaws in the U.S. international tax system that drove companies to expatriate. Further, the Act did not address abusive practices such as earnings stripping through related company debt.
Recommended Citation
Goldman, Steven H.
(2010)
"Corporate Expatriation: A Case Analysis,"
Florida Tax Review: Vol. 9:
No.
1, Article 2.
Available at:
https://scholarship.law.ufl.edu/ftr/vol9/iss1/2