It's known as corporate "inversion.” That’s when a stateside company merges with a foreign entity and moves its headquarters to said country to avoid paying US taxes. It sounds bad, but a loophole in the law makes the practice legal. And now, President Obama wants companies to end the practice out of "economic patriotism."
"They're technically renouncing their U.S. citizenship. They're declaring they are based someplace else even though most of their operations are here," Obama said during a speech delivered last Thursday at Los Angeles Trade Technical College. "You know, some people are calling these companies corporate deserters."
In May, Pfizer tried to buy British pharmaceutical company AstraZeneca. The purchase would have saved the US drugmaker billions of dollars in taxes. Pfizer ultimately abandoned the bid, but not before inadvertently casting a spotlight on the antiquated loophole. Walgreen is currently mulling over a move to Switzerland for the same reason. According to the Congressional Research Service, 47 US-based companies in the past decade have engaged in tax inversion.
Entrepreneur and owner of the Dallas Mavericks Mark Cuban has weighed in on the debate with these tweets over the weekend. What's the best way to close the loophole?
If I own stock in your company and you move offshore for tax reasons I'm selling your stock. There are enough investment choices here— Mark Cuban (@mcuban) July 25, 2014
When companies move off shore to save on taxes, you and I make up the tax shortfall elsewhere sell those stocks and they won't move— Mark Cuban (@mcuban) July 25, 2014
Harry Stein, Associate Director of fiscal policy at the Center for American Progress, a left-leaning educational, public policy research, and advocacy organization, who’s been following the debate on corporate inversion.
Mark Hendrickson, economist and fellow for economic and social policy with The Center for Vision & Values at Grove City College, a Christian liberal arts college in Pennsylvania. He’s also a contributor to Forbes magazine. His most recent piece is about corporate inversion.