Inversion Joke (We hope)

This is getting …

You know, I don’t know the word to use here … funny … ridiculous … pathetic?  Plug in whichever you’d like. I guess I’ll opt for pathetic because this reminds me of a spurned lover shaming his former lover to get her back. “You tramp.” Never worked yet. Never will.

Background data: Inversion describes the practice of a domestic company buying a foreign subsidiary and switching their tax base from the U.S. to the foreign country. This practice has been picking up steam and several large U.S. companies have already done it. Several government solutions have been mentioned, among them an Obama Executive Order.

Reuters featured article of the day …


WASHINGTON (Reuters) – A senior U.S. senator said on Thursday he has written to the chief executive of Hospira Inc and urged the drug and medical device maker not to move its tax domicile abroad to save on U.S. taxes.

The Senator is Dick Durbin, number 2 Democrat in the Senate.

“Please don’t leave. Sure our taxes are high, but please … “

What did these idiots think? Everyone would just go along with the biggest tax increase in history? Companies don’t have the sentimental attachments to their country of origen that individuals have. (Perhaps you’ve noticed, more individuals have also been abandoning the good ol’ USA for tax reasons as well. Inversions aren’t some kind of anomaly. They’re part of the pattern). Companies have to answer to shareholders, and can even be sued for failure to take every possible opportunity to increase shareholder wealth. One of the benefits of new fangled B Corps is that it allows corporations and their management to make contributions without having to fear this repercussion. (There are other drawbacks to B corps, so look before you leap.)

One of the characteristics of a corporation, developed by consulting firms like McKinsey and academics like Porter, is this … the primary goal of a public company is to maximize shareholder wealth. Period. If they knowingly fail to do that, they’re subject to a lawsuit. 

Senator Durbin is making this argument to management. “We want you to stay in the U.S. and put your personal wealth at risk of getting wiped out in a lawsuit by stockholders for knowingly subjecting the company to the higher U.S. taxes.

This is a losing argument.  If there is an inversion alternative, every public company in the U.S. will be obligated to take it. Or get sued. 

This is as certain as (1 + 1 = 2)

This discussion is going on in board rooms all over the country. Every tax savings opportunity must be taken. If you ignore it, you may get sued personally. No board member wants his personal fortune wiped out by a lawsuit for voluntarily squandering shareholder wealth by voluntarily paying more tax than the law requires. Before this is all over, every company in the country will be looking at possible inversion opportunities. This is the driver behind that.

I cannot speak for large multinationals and the Fortune 500, because it’s been some time since I worked in that area. But I suspect they are fully aware of this and, as far as I know, their tax strategies reflect that. I described in another post how Apple saved $400 billion with innovative tax strategies and how Congress responded by conducting hearings to humiliate them. We should have realized then that the government considers it our patriotic duty to pay more tax than the law requires. There is a video of the Congressional hearings out there (I’ve seen it on Business Insider a couple of times) with Tim Cook denying anything illegal. Apple was never charged, It was just a dog and pony show intended to embarrass them into abandoning this legal tax strategy. The government has been lobbying the EU to get them to outlaw this practice as well. If you have friends like these, who needs enemies?

Our largest companies obviously have their act in order, but their little brothers, the closely held companies are another matter altogether. They have long since sacrificed cutting edge tax strategies in favor of a long and comfortable relationship with their accounting firm. If they like most firms are in the practice of slapping the same ol’ numbers on the same ol’ forms year after year, the question is why?


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