What are Tax Inversions?

Last updated on September 22, 2023

Tax inversion is a method of legal evasion that entails relocating the company’s headquarters to a tax haven or a country with lower tax rates. Many companies also use mergers with the intention of drastically reducing their tax liability in their own country. They do that by undergoing a merger with a company that operates in a foreign country.

Tax inversions provide a way to substantially reduce a company’s tax liability by paying taxes in a country with a lower tax rate. They are achieved by using loopholes in the tax code and cannot be punished under law.

The only way to prevent tax inversion is to change the law(s) that allow it. Many multinational corporations use legal tax evasion to reduce their liability in the U.S. Tax inversion is just one of the methods. After the government discovered that many corporations have been using tax inversions, they are now considering tax law changes to prevent them from continuing.