The number of US companies reincorporating overseas has shot up considerably in recent decades.
Nearly twice as many companies, 47, have shifted their corporate taxpaying obligations abroad since 2003 as in the previous 20 years, according to data from Congressional Research Service. And the acceleration is predicted to continue: At least another 12 are planning to do the same, according to CRS.
Why all the reincorporation, or tax inversion, as the practice is often called? The answer is corporate tax breaks.
There are a number of advantages inherent in reincorporating, including the likelihood of more fluid overseas acquisitions and lower borrowing rates because of increased cash piles. But when a company reincorporates, what it's really doing is shifting its corporate citizenship, and when a company shifts its corporate citizenship, what it's really doing is trying to pay less in taxes. The United States' dreaded 35 per cent corporate tax rate is plenty higher than that of, say, Britain, where it hovers closer to 20 per cent.
Since reincorporating outside the United States is not only perfectly legal but also is likely to prove fairly lucrative, it's hard to blame any company capable of making the move for trying to do so. It has, after all, resulted in the stockpiling of about $1 trillion in cash now believed to be sitting overseas as a result of such maneuvers.
