Sunday, July 13, 2014

Sunday Reading - Corporate Tax Dodging

In this morning's once great Washington Post Bezos Bugle, Allan Sloan has an informative column about a growing number of tax-dodging American corporations reincorporating overseas where the corporate tax rate is lower, a process known as "inversion."  Here's Sloan:
A company does this by reincorporating in a place such as Ireland, where the corporate tax rate is 12.5 percent, compared with 35 percent in the United States. Inversion also makes it easier to divert what would normally be U.S. earnings to foreign, lower-tax locales. But being legal isn’t the same as being right. If a few companies invert, it’s irritating but no big deal for our society. But mass inversion is a whole other thing, and that’s where we’re heading.  [snip] 
Inverters don’t hesitate to take advantage of the great things that make America America: our deep financial markets, our democracy and rule of law, our military might, our intellectual and physical infrastructure, our national research programs, all the terrific places our country offers for employees and their families to live. But inverters do hesitate — totally — when it’s time to ante up their fair share of financial support of our system.
Sloan names some of the "deserters:"
Companies that have gone the inversion or never-here route but that act American include household names such as Garmin, Michael Kors, Carnival and Nielsen. Pfizer, the giant pharmaceutical company, tried to invert this spring, but the deal fell through. Medtronic, the big medical-device company, is trying to invert, of which more later. Walgreens is talking about inverting, too — it’s easier to boost earnings by playing tax games than by fixing the way you run your stores.  [Ed. note:  Snap, zing!]
As promised, he goes into great detail about the proposed Medtronic inversion.  Here's the scheme they're considering:
The current poster child for inversion outrage is Medtronic, the multinational Minnesota medical-device company that once exuded a cleaner-than-clean image but now proposes to move its nominal headquarters to Ireland by paying a fat premium price to buy Covidien, itself a faux-Irish firm that is run from Massachusetts except for income-tax-paying purposes. For that, it is based in Dublin. That’s where the new Medtronic PLC would be based, while its real headquarters would remain on Medtronic Parkway in Minneapolis. Of course, the company is unlikely to return any of the $484 million worth of contracts the federal government says it has awarded Medtronic over the past five years.
Unless you suffer from high blood pressure, read the column to see what goodies Medtronics is giving its top executives and board members to grease the inversion skids.

Sloan also offers some ideas to fix the problem in the short term (tighten inversion rules in the tax code, as proposed by Sen. Carl Levin and his brother, Rep. Sander Levin - both Michigan Democrats), while we await (and await and await?) corporate tax reform.  Another short term fix Sloan proposes is disclosure - requiring American corporations and their subsidiaries to report on "their U.S. taxable income for a given year and how much income tax they owed."   If more of these companies can be publicly shamed by their tax-dodging, it might help stem the growing culture in which "inversion" (or, as we would call it "corporate mooching") is accepted as normal business practice (as Sloan points out, it worked with Starbucks).  

In the end, though, public shaming is not a substitute for better public policy.  If these tax-dodging corporations have no sense of what it means to be a responsible corporate citizen, and we think most of them don't, then it's government's obligation to act in the interests of all the American people to shut down this shell game.

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