Targeting Inversions: ‘This Is A Really Big Deal’

GARY COHN: ‘We're Going To Make America Competitive’

GARY COHN, Director Of The National Economic Council: “Look, a year ago, I was on the other side of this equation. I was advising companies how to get out of the burdensome U.S. tax system. We were talking about inversions — we were talking about moving companies out of the United States. The most compelling presentation I could make to a board is, hey, I can turbocharge your earnings without doing anything in your company. I can just relocate your domicile, and you can hold your board meetings, you can do a few things, and you can go from a 35 percent tax rate to a 15 percent tax rate. You can deliver 20 percent of your earnings to the bottom line. ... So, you know what? We're going to make America competitive. We're going to make it compelling for people to build their companies in America.” (“Gary Cohn: A Year Ago, I Was Advising Companies To Move Out Of The US,” CNBC, 11/9/2017)

IRISH TIMES: “American tax overhaul has worrying implications for Ireland… This is unsettling for Ireland. Addressing the House this week, Paul Ryan – a proud Irish-American – cited the example of Johnson Controls, a company that has had roots in his home state of Wisconsin since the 1880s but is now based in Ireland. The new tax system will help make the United States ‘the most competitive place in the world’, he said. Worrying words for Ireland.” (“American Tax Overhaul Has Worrying Implications For Ireland,” Irish Times, 11/18/2017)

WALL STREET JOURNAL EDITORIAL: “…the Senate and House bills would do far more to stop corporate tax gaming than anything the Obama Administration did in eight years. This includes preventing tax avoidance, levelling the tax field for U.S. multinationals, stopping corporate inversions.” (Editorial, “Reducing Corporate Tax Games,” The Wall Street Journal, 11/29/2017)

• WSJ: “Start with cutting the corporate rate to 20% from 35%, which in a stroke offers less incentive for companies to move capital, income and intellectual property out of the U.S. to lower tax climes. During the Obama Administration, many U.S. companies ‘inverted’ by merging with smaller foreign competitors to take advantage of lower tax rates abroad. The U.S. has the highest corporate rate in the developed world, whose average is 25%.”  (Editorial, “Reducing Corporate Tax Games,” The Wall Street Journal, 11/29/2017)

• “The Senate plan also contains a harsh new rule for new corporate inversions — transactions in which US companies merge with offshore firms to shift their tax addresses offshore. It would hold that any company engaging in an inversion within ten years after enactment would be taxed at 35 per cent — not any lower rates.” (“Multinationals Facing Radical Tax Changes,” The Royal Gazette, 11/14/2017)

• “Targeting Inversions: Payments that U.S. companies make to offshore subsidiaries or parent firms for royalties or other costs for sold goods would be taxed... Such payments are currently deductible -- so the tax would erase some of that benefit. … ‘This is a really big deal,’ said Michael Mundaca, co-leader of the Ernst & Young Americas Tax Center and a former top Treasury tax official [during the Obama administration].” (“Tax Bill Takes Extra Bite Of Apple And Other Global Companies,” Bloomberg, 11/3/2017)

FEDERAL RESERVE: “Inversions are undertaken to reduce taxes. This permissible strategy changes the tax jurisdiction and, therefore, the tax rate to that of the new foreign parent. The tax benefit can be substantial because the U.S. corporate tax rate is one of the highest in the world, with a statutory rate of 35 percent.” (“A Look At Corporate Inversions, Inside And Out,” Federal Reserve Bank Of St. Louis, 2017)

• FED: “Absent reform… The Congressional Budget Office has estimated that corporate income tax receipts will decline from 2.3 percent of gross domestic product (GDP) in fiscal year 2016 to 1.8 percent of GDP in fiscal year 2025—partly due to inversions.” (“A Look At Corporate Inversions, Inside And Out,” Federal Reserve Bank Of St. Louis, 2017)