Some of America's top corporations are parking profits overseas and ducking hundreds of billions in taxes. And how's Congress responding? It's rewarding them for ripping us off
At $55 billion, the AbbVie deal is the largest in a cavalcade of corporate "inversions." A loophole in American tax law permits companies with just 20 percent foreign ownership to reincorporate abroad, which means that if a big U.S. firm acquires a smaller company located in a tax haven, it can then "invert" – that is, become a subsidiary of its foreign-based affiliate – and kiss a huge share of its IRS obligations goodbye.
AbbVie shareholders will continue to control 75 percent of the company, which will still be managed by executives outside Chicago. But the merged company will now file its tax returns on the island of Jersey – a speck of land in the English Channel, where Shire is incorporated. AbbVie, which racked up more than $10 billion in Humira sales last year, will slash its effective corporate tax rate from 22 percent to 13. The cost to the U.S. Treasury? Possibly as much as $1.3 billion by the year 2020.
Companies striking deals to become technically foreign can be found in all corners of American business, from California computer-equipment manufacturer Applied Materials to Minnesota medical-device giant Medtronic to North Carolinabased banana behemoth Chiquita. Little is changing in the core business of these firms. They will just pay less in taxes – and to a foreign government, often Ireland or the Netherlands.
These tax turncoats have drawn the ire of President Obama. "I don't care if it's legal," he declared this summer. "It's wrong." These inverted companies, he said, "don't want to give up . . . all the advantages of operating in the United States. They just don't want to pay for it."
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