Professor Rita Grant


Taxation is often regarded as one of the most complex aspects of modern society. With a tax code that is now over 70,000 pages long, it is no wonder that many have little to no understanding of how taxation works in the United States. In spite of the length and depth to which the code explains tax procedure, there are still individuals that find ways to exploit loopholes. In the past 30 years, the technique of tax inversion has become an incredibly popular way for companies to reduce the amount of tax they have to pay each year.

In simple terms, tax inversion is the practice of a company relocating its headquarters to another country in order to fall under the tax laws of that country. The moving of the headquarters allows the company to use the tax rate of the new country, while generally making the same amount of profit as before. This a much-abbreviated version of what tax inversion is, but it reveals the root of the problem. The problem being that companies are still earning large profits, but are avoiding much of the tax burden they would normally incur. Each year millions are lost in tax revenue due to tactics such as this. Measures to discourage this kind of behavior are put into place year after year, with some success, but they still do not stop the problem completely.

One of the most recent examples of this behavior is the acquisition of Tim Hortons by Burger King. As a result of the deal, Burger King will relocate its headquarters to Ontario, Canada. Burger King claims that it is doing so to fulfill its desire to become a larger player in the market for fast food breakfast and to expand their business in Canada and abroad further. Only upper level management of Burger King knows the true intentions, but many speculate that the move was made to help lower their tax payments.

Along with the financial issues brought up by tax inversion, issues of morality are also presented. Like other companies that have made similar changes, it is difficult to discern if they are doing so because they want to help the company that they are merging with, or if they are doing it for more monetarily related goals. There are a handful of issues regarding this topic, but this paper will primarily focus : what tax inversion is, how the companies inverting will benefit, and reform suggestions for the U.S. to help stop companies from inverting for the wrong reasons.

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