The Real Threat of Tax Inversions

Last updated on September 8, 2023

After it was discovered that many large companies are using tax inversions to limit their tax liability in the U.S., efforts have been made to curb this practice. The difficulty in limiting tax inversions is that they’re currently permitted under federal law. President Obama came out strongly opposed to tax inversions and is now following up on limiting them. In a press conference, he said that “We don’t want to see this trend grow. We don’t want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it too.”

In a highly competitive corporate environment, tax inversions can become a trend if laws preventing their use are not amended. Closing the loopholes that allow tax inversions may be the only way to prevent them. According to an estimate, approximately 50 U.S. companies used tax inversions to reduce their tax bill in the U.S. and around $2 trillion worth of earnings are kept overseas to avoid paying taxes in the U.S.

The continuation of this practice may be a real threat to the economy, as the lost tax money might have been used in areas of development such as infrastructure, research, services, etc. Many taxpayers consider this discrepancy unfair.