Tax Inversions | Article | FTI Consulting Tax Inversions: Washington Is Asking the Wrong Questions

Strategic Communications | (Reprint)

July 22, 2014

US Treasury Department

As with many debates in Washington these days, the latest one over corporate tax inversions is centered on the wrong question and leading policy makers to the wrong answer.

In the wake of Medtronic and other U.S. companies announcing plans to "invert" — a type of transaction where a U.S. company acquires a foreign competitor and relocates to that company's more favorable tax jurisdiction — the question many are asking is:

How do we stop it?

The answer, according to the Treasury Department and some in Congress, is to pass legislation that makes it harder for U.S. companies to leave.

Put aside for a moment, the questionable wisdom of the U.S. government punishing businesses for doing what they think is best for the long-term interests of their shareholders, customers and employees.

This type of legislation could exacerbate the very problems it purports to solve. For starters, reports are already emerging of more U.S. companies looking abroad, as they race to consider deals ahead of any law cracking down on inversions. And if a law like this did pass, it could actually make U.S. companies more inviting targets for foreign takeovers, because a U.S. company's assets would be more valuable if held by a company in a lower-tax country.

That's not the worst of it.

By focusing its attention on forcibly keeping U.S. companies here, Washington is leaving unanswered the most critical question of all:

Why are so many U.S. companies looking at options to leave in the first place?

Posted with permission from CNBC LLC. Copyright ©2014. All rights reserved.

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