Published: April 14, 2016
Mergers and Acquisitions have become one of the newest ways to try to avoid taxes. Companies have started flocking to the idea of inversions to help limit their taxes. An inversion is when a large U.S. company moves to merge with a smaller company that is not based in the U.S. During the merger the U.S. based company decides to move its headquarters to a different country which normally has a much lower tax rate. Here the company can continue operations in the U.S. but will pay much less in taxes. In past years, hundreds of companies have used this technique to escape the high taxes that come with operating in the United States. That is until April 4, when the U.S. government issued new regulations on tax laws that were specifically aimed to prevent companies from continuing to go through with this process. So far these new regulations have already ended one merger between Pfizer and Allergan that had planned to move the new company’s headquarters to Ireland. This is one of many mergers that has already started to feel the effects of the new regulations.
“I think it is discouraging businesses from merging with foreign investors. If they want businesses to stay they should lower taxes to make the U.S. a better option.” said Neil Vita, a junior finance and accounting double major.
While companies who operate in the U.S. and have world-wide profits must pay a 35 percent tax rate on all profits, they can defer some of the tax until it gets brought back to the U.S. This leads to most companies not bringing back their profits if they can avoid doing so. By doing this the companies avoid having to pay for the extremely high tax rate on foreign profits. Linda Spatola a junior astrophysics major, thought “most Americans see this as finding loopholes in the tax system, and therefore they are not helping the American economy.”
While the final effects of these new regulations have yet to be felt, it can surely be said that they are going to have lasting implications in the U.S. for the years to come.
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