Inversion Perversion Anna Bezner

Agenda What is Inversion? Inversion in the News US Tax Code How to Stop Inversion Recent Actions of the Treasury

A corporate inversion is a transaction in which a U.S. based multinational restructures so that the U.S. parent is replaced by a foreign parent, in order to avoid U.S. taxes American unit borrows from Foreign Parent Company American unit pays interest on Debt Sums involved deducted from American Taxes

In the News In 2014, there have been 11 proposed inversion deals Since 1982, 45 companies have inverted Mylan targets Abbott’s Generics Unit Last year Mylan paid $120,808,000 in taxes All-stock transaction: $5.3 million value Abbott takes 21% ownership stake in Mylan 100 Abbott products transfer to new company in the Netherlands, which Mylan will merge with Mylan expects deal will add $1.9 billion in annual income

US Tax Code US Corporate Tax Rate: 35% - highest of OECD countries Tax Breaks - costing $150 billion in forgone revenue, more than ½ of what US collected in total corporate taxes in 2013 Original shareholders of foreign company must still own at least 20% of merged company Tax-deductible interest paid to related party may not exceed 50% of cash flow US levies taxes on all profits, no matter where in the world it is earned Profits are not taxed until brought back to US

2014 Corporate Income Tax Rates of OECD Countries On average, the represented countries’ have reduced corporate tax rates by 7.2% since 2000 – the US has reduced by 0% 5 10

How to Stop It Lower corporate tax rates Change where taxes are collected Raise minimum requirement for change of ownership Lower tax-deductible limit of cash flow

Treasury Actions US entity must own less than 80% of new combined entity Prevent access to foreign subsidiary's earnings through “hopscotch loans” by classifying them as US Property Prevent companies from restructuring foreign subsidiary by recognizing foreign parent takeovers of foreign company as stake in the former US parent, not new entity

Questions?