Tax Inversions: Companies vs. the Government

Last updated on July 30, 2023

Many U.S. companies merge with smaller foreign companies to reduce their tax liability, a tactic some critics to declare unpatriotic. Reducing one’s tax liability and whether this truly is unpatriotic is open to debate, considering that the U.S. has a very high corporate tax rate. President Obama has considered lowering this tax rate, and has also criticized U.S. companies for using inversions to avoid paying taxes in the U.S.

When Apple Inc. was criticized for avoiding tax payments in the U.S. by using subsidiaries overseas, the company’s stance was no different than that of a large number of multinationals. They considered it unfair that they were being charged one of the highest taxes in the world. The company asked the government to consider lowering the tax rate.

Any kind of tax evasion that is conducted legally, i.e. by exploiting the loopholes in the tax code, can be curbed, if not stopped, by making tax code changes. That is what the President and the Congress are aiming for. Some believe an update to the tax code is long overdue. Along with closing the loophole that allows individuals and companies to evade taxes legally, an overhaul will also prevent tax evasion from happening. Even though it will be a gigantic task, critics believe the Treasury may save millions of dollars each year by limiting tax evasion.