The Obama administration called for immediate congressional action to stop U.S. companies from using cross-border mergers to avoid the country’s tax system.
A growing number of U.S. companies are looking to escape their federal tax bills by merging operations with foreign businesses, and the trend might cost the federal government billions of dollars in revenue. The mergers used to legally avoid taxes, known as inversion transactions, have become increasingly popular over the past year, particularly in the pharmaceutical industry. In inversions, U.S based businesses purchase a foreign company, then switch the legal address to take advantage of the foreign jurisdiction’s favorable tax rules. In many cases, the companies’ executives remain in the U.S.
President Barack Obama has proposed raising the threshold for inversions on foreign-entity ownership to 50 percent, with the goal of making them less attractive.
