DEATH KNELL FOR OFFSHORE CORPORATIONS' TAX EVASION

Companies Face Backlash Over Foreign Mergers To Avoid U.S. Taxes
by YUKI NOGUCHI
May 13, 2014
U.S. drugmaker Pfizer has offered more than $100 billion to acquire its London-based rival, AstraZeneca. Pfizer says it likes AstraZeneca's strong "pipeline" of new drugs. But the American company makes clear it is pursuing the British firm because it wants to lower its tax rate. All Pfizer has to do is buy the company and move its headquarters to London.

It used to be easier for companies to keep their legal bases in out-of-the-way places, like Bermuda. It's a practice known as tax inversion, and it was popular until 2004, when Congress changed the law. Now, companies whose ownership is 80 percent based in the U.S. are subject to U.S. taxes.

But tax inversion is coming back in a new form. In the last year, Chiquita, of banana fame, media giant Liberty Global and drug company Perrigo all announced deals to buy foreign companies and shift their headquarters. In each case, it lowered their tax burdens.

"So it's something that is back as a hot thing for some companies to do," says Michael Kirsch, a former international tax counsel for the U.S. Treasury and a law professor at Notre Dame. Kirsch says recent mergers between U.S. companies and foreign firms are aimed at circumventing the restrictions of the 2004 law. That's because a merger often means the firms fall below the 80 percent domestic ownership threshold. Kirsch says after the merger, operationally, things don't change much. Executives and personnel of the U.S. company often stay in the U.S.

Steve Wamhoff is legislative director of Citizens for Tax Justice, a public advocacy group. He says that should be a concern for Pfizer.

"These corporations are American corporations in every sense of the word," Wamhoff says. "They're doing most of their business in the United States. They're benefiting from the public investments that we all pay for." Wamhoff is pinning hopes on promises by Sen. Carl Levin, D-Mich., and others to crack down on tax avoidance.

"Pfizer is going to, just by moving some paper around, pretend to be a foreign company and get out of paying their U.S. taxes, and it's absolutely wrong," Wamhoff says. "This hopefully is the sort of thing that will be a catalyst for congressional action."

EconomySending Money On An Overseas Round Trip To Avoid Taxes
by JIM ZARROLI
April 15, 2014 

Some investors avoid paying taxes in a move called round-tripping — sending money offshore, then investing it in U.S. stocks or bonds. A study estimates it costs the U.S. billions in lost revenues.

Recently, MIT professor Michelle Hanlon and two colleagues set out to find out all they could about round-tripping.

"I think it's a big problem in the U.S. tax system that individuals can evade taxes and that they try to do so offshore," Hanlon says. "So we just felt like it was a big policy issue actually to try to get a handle on how much this occurs and whether we could track this down with data."

In round-tripping, American citizens open bank accounts in tax havens such as the Cayman Islands. They funnel money into the accounts and then use it to buy stocks and bonds back in the U.S.

"A U.S. individual would pretend essentially to be a foreign investor," Hanlon says. "So they would set up, say, a bank account or a shell corporation offshore and from that offshore location they would invest back in the U.S."