Tax inversions, benefits and pitfalls Term Paper

Tax inversions, benefits and pitfalls - Term Paper Example This issue was put to great publicity in April 2014 and came together with the proposed merger between two companies, AstraZeneca and Pfizer. Even though multinational public corporations have recently received more press coverage on tax inversions, middle-market and private corporations can invert and realize same tax benefits. A change of the legal location of the company from the United States to another nation allows the company to benefit from certain laws in that nation. Typical benefits that make corporations in the U.S to re-incorporate in other countries include banking laws that are more flexible. In addition, they also benefit by getting friendly corporate governance rules and lower tax rates. Bermuda is one of the most common destinations for tax inversions due to several reasons. The principal driver is because Bermuda does not tax capital gains. Also, it does not have any corporate income, dividend tax or profit. Typically, shareholders of such corporations need to pay taxes from the profits realized after inversion. Worse enough, the tax inversion transaction is mostly a stock transaction where the shareholders get no money to pay taxes on their profits in the stock. In that case, inversions are a long term play for shareholders of corporations which can bear the short term tax bite. Tax inversion also leads to unemployment in the country of origin of such corporations. The tax inversions do not typically alter the structure of operation for the company. Mostly, it means adding a smaller office in the new foreign location of the company. Therefore, even though on rare occasions, tax inversions lead to unemployment. The Bush administration passed a legislation that required corporations to continue paying taxes under current rules. Under this Act, the corporate minimum tax rules would still apply. Current rules where corporations control