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The Latest Tax Scam in Corporate "Inversion" - Who Pays Instead?

Thursday, 28 January 2016 00:00 By Dave Johnson, Campaign for America's Future | News Analysis
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Johnson Controls Inc. and Tyco International PLC have announced a $14 billion merger, with the resulting company pretending to be "Irish." This is called an "inversion" and is all about dodging taxes.

Johnson Controls is actually based in Milwaukee. Tyco is based in Princeton, NJ but became "Irish" through its own prior tax-dodging inversion(s). The Washington Post explains this, in "Manufacturing giants Tyco and Johnson Controls agree to merge":

This is not the first time Tyco, which started as a New Jersey-based research laboratory for the US government in the 1960s before growing into a global behemoth with workers in about 50 countries, has made use of tax-avoidance measures. In 1997, it merged with a Bermuda-based company in another corporate inversion before moving its headquarters to Switzerland in 2008. It moved to Ireland in 2013.

Tyco is also remembered for its former President Dennis Kozlowski, who was convicted in 2005 of various crimes related to looting shareholders and using the money for things like a 2001 $2.2 million party on the island of Sardinia.

The Inversion Tax Scam Game

An inversion allows corporations to pretend to be non-US companies and dodge taxes while still getting the full benefits of our country's taxes: roads and other physical infrastructure, advanced legal system, educated workforce, police and other protections, military protection, and so on.

November's post, "Pfizer Buying Allergan So It Can Pretend To Be Irish In Tax Scam" explained how this works: "In other words, the resulting merged company will make and sell products in the same places it makes and sells them now. The same executives will occupy the same buildings. It will receive the same taxpayer-funded US services, infrastructure, courts and military protection that it receives now. But the company will now claim it is "based" in tax-haven Ireland and thereby dodge US taxation."

The thing is, corporations and shareholders already pay lower tax rates than regular people do. They also get special privileges including "limited liability." People who make money trading corporate shares get a special, lower "capital gains" tax rate. (This capital gains tax rate is lower because the wealthiest make most of their income from capital gains, and the wealthiest make most of their income from capital gains because the capital gains tax rate is lower.)

But they want more. They want it all. And they're getting it.

Who Pays Instead?

The billionaires and other shareholders already enjoy special lower tax rates than the rest of us (low capital gains tax rates, the Social Security "cap," the carried interest loophole, multitudes of other breaks…) This is just one more tax break they utilize as their wealth builds and builds. And that massive accumulated wealth buys more and more privileges and breaks.

We the People of the United States, through our elected Representatives in Congress, allow this. Or, to put it in today's reality: Billionaires and their corporations pay handsomely for a Congress that allows this.

But when these giant corporations and the billionaires behind them don't pay their taxes, guess who has to either make up the difference or suffer the cutbacks in the things government does to make our lives and economy better? (Hint: Register to vote today and be absolutely sure to show up and VOTE this time. Don't be misdirected, demoralized, suppressed or otherwise tricked into not voting. Talk to other people about registering and voting, too.)

The Candidates

The Republican candidates generally propose stopping corporate inversions to avoid US corporate taxes by reducing or even ending US taxation of corporations.

Presidential candidates Bernie Sanders and Hillary Clinton have similar proposals for limiting these "inversions."

Here's Hillary Clinton's statement on the Johnson Controls-Tyco inversion deal:

"It is outrageous when large multinational corporations game the tax code and shelter money overseas to avoid paying their fair share, including through maneuvers like inversions. As I have said throughout my campaign, these efforts to shirk US tax obligations leave American taxpayers holding the bag while corporations juice more revenues and profits."

Clinton's "detailed and targeted plan to immediately put a stop to inversions and invest in the US" includes:

  • A 50 percent threshold for foreign company shareholder ownership after a merger before an American company can give up its US identity.
  • An "exit tax" to ensure multinational companies that change their identity pay a fair share of the US taxes they owe on earnings stashed overseas.
  • A crackdown on "earnings stripping," one of the key benefits of inversions.

Sanders released a statement condemning "corporate deserters":

"The potential Johnson-Tyco merger would be a disaster for American taxpayers," Sanders said. "Profitable companies that have received corporate welfare from American taxpayers should not be allowed to renounce their US citizenship to avoid paying US taxes. These corporate inversions must stop.

"My message to these corporate deserters is simple: You can't be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government," Sanders continued. "If you want the advantages of being an American company then you can't run away from America to avoid paying taxes."

The Sanders Corporate Tax Reform Plan involves:

  • Ending the rule allowing American corporations to defer paying federal income taxes on profits of their offshore subsidiaries.
  • Closing loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits.
  • Preventing American corporations from claiming to be foreign by using a tax-haven post office box as their address.
  • Preventing American corporations from avoiding US taxes by "inverting." Under Sanders' bill the US would continue to tax such a company as an American corporation so long as it is still majority owned by the owners of the American party to the merger or acquisition.
  • Prevent foreign-owned corporations from stripping earnings out of the US by manipulating debt expenses.
  • Preventing large oil companies from disguising royalty payments to foreign governments as foreign taxes.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Dave Johnson

Dave Johnson (Redwood City, California) is a fellow at Campaign for America's Future, writing about US manufacturing, trade, and economic and industrial policy. He is also a senior fellow with Renew California.

Dave has more than 20 years of technology industry experience, including positions as CEO and VP of marketing. His earlier career included technical positions, including video game design at Atari and Imagic. And he was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped cofound a company developing desktop systems to validate carbon trading in the US.


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The Latest Tax Scam in Corporate "Inversion" - Who Pays Instead?

Thursday, 28 January 2016 00:00 By Dave Johnson, Campaign for America's Future | News Analysis
  • font size decrease font size decrease font size increase font size increase font size
  • Print

Johnson Controls Inc. and Tyco International PLC have announced a $14 billion merger, with the resulting company pretending to be "Irish." This is called an "inversion" and is all about dodging taxes.

Johnson Controls is actually based in Milwaukee. Tyco is based in Princeton, NJ but became "Irish" through its own prior tax-dodging inversion(s). The Washington Post explains this, in "Manufacturing giants Tyco and Johnson Controls agree to merge":

This is not the first time Tyco, which started as a New Jersey-based research laboratory for the US government in the 1960s before growing into a global behemoth with workers in about 50 countries, has made use of tax-avoidance measures. In 1997, it merged with a Bermuda-based company in another corporate inversion before moving its headquarters to Switzerland in 2008. It moved to Ireland in 2013.

Tyco is also remembered for its former President Dennis Kozlowski, who was convicted in 2005 of various crimes related to looting shareholders and using the money for things like a 2001 $2.2 million party on the island of Sardinia.

The Inversion Tax Scam Game

An inversion allows corporations to pretend to be non-US companies and dodge taxes while still getting the full benefits of our country's taxes: roads and other physical infrastructure, advanced legal system, educated workforce, police and other protections, military protection, and so on.

November's post, "Pfizer Buying Allergan So It Can Pretend To Be Irish In Tax Scam" explained how this works: "In other words, the resulting merged company will make and sell products in the same places it makes and sells them now. The same executives will occupy the same buildings. It will receive the same taxpayer-funded US services, infrastructure, courts and military protection that it receives now. But the company will now claim it is "based" in tax-haven Ireland and thereby dodge US taxation."

The thing is, corporations and shareholders already pay lower tax rates than regular people do. They also get special privileges including "limited liability." People who make money trading corporate shares get a special, lower "capital gains" tax rate. (This capital gains tax rate is lower because the wealthiest make most of their income from capital gains, and the wealthiest make most of their income from capital gains because the capital gains tax rate is lower.)

But they want more. They want it all. And they're getting it.

Who Pays Instead?

The billionaires and other shareholders already enjoy special lower tax rates than the rest of us (low capital gains tax rates, the Social Security "cap," the carried interest loophole, multitudes of other breaks…) This is just one more tax break they utilize as their wealth builds and builds. And that massive accumulated wealth buys more and more privileges and breaks.

We the People of the United States, through our elected Representatives in Congress, allow this. Or, to put it in today's reality: Billionaires and their corporations pay handsomely for a Congress that allows this.

But when these giant corporations and the billionaires behind them don't pay their taxes, guess who has to either make up the difference or suffer the cutbacks in the things government does to make our lives and economy better? (Hint: Register to vote today and be absolutely sure to show up and VOTE this time. Don't be misdirected, demoralized, suppressed or otherwise tricked into not voting. Talk to other people about registering and voting, too.)

The Candidates

The Republican candidates generally propose stopping corporate inversions to avoid US corporate taxes by reducing or even ending US taxation of corporations.

Presidential candidates Bernie Sanders and Hillary Clinton have similar proposals for limiting these "inversions."

Here's Hillary Clinton's statement on the Johnson Controls-Tyco inversion deal:

"It is outrageous when large multinational corporations game the tax code and shelter money overseas to avoid paying their fair share, including through maneuvers like inversions. As I have said throughout my campaign, these efforts to shirk US tax obligations leave American taxpayers holding the bag while corporations juice more revenues and profits."

Clinton's "detailed and targeted plan to immediately put a stop to inversions and invest in the US" includes:

  • A 50 percent threshold for foreign company shareholder ownership after a merger before an American company can give up its US identity.
  • An "exit tax" to ensure multinational companies that change their identity pay a fair share of the US taxes they owe on earnings stashed overseas.
  • A crackdown on "earnings stripping," one of the key benefits of inversions.

Sanders released a statement condemning "corporate deserters":

"The potential Johnson-Tyco merger would be a disaster for American taxpayers," Sanders said. "Profitable companies that have received corporate welfare from American taxpayers should not be allowed to renounce their US citizenship to avoid paying US taxes. These corporate inversions must stop.

"My message to these corporate deserters is simple: You can't be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government," Sanders continued. "If you want the advantages of being an American company then you can't run away from America to avoid paying taxes."

The Sanders Corporate Tax Reform Plan involves:

  • Ending the rule allowing American corporations to defer paying federal income taxes on profits of their offshore subsidiaries.
  • Closing loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits.
  • Preventing American corporations from claiming to be foreign by using a tax-haven post office box as their address.
  • Preventing American corporations from avoiding US taxes by "inverting." Under Sanders' bill the US would continue to tax such a company as an American corporation so long as it is still majority owned by the owners of the American party to the merger or acquisition.
  • Prevent foreign-owned corporations from stripping earnings out of the US by manipulating debt expenses.
  • Preventing large oil companies from disguising royalty payments to foreign governments as foreign taxes.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Dave Johnson

Dave Johnson (Redwood City, California) is a fellow at Campaign for America's Future, writing about US manufacturing, trade, and economic and industrial policy. He is also a senior fellow with Renew California.

Dave has more than 20 years of technology industry experience, including positions as CEO and VP of marketing. His earlier career included technical positions, including video game design at Atari and Imagic. And he was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped cofound a company developing desktop systems to validate carbon trading in the US.


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