When Corporatocracy published the article, Corporate Inversion Relocation almost two years ago, little attention or coverage in the financial press could be found on the tax avoidance practice of inversion. Now that Hillary Clinton denounced the $16 billion (€14.7 billion) merger of Johnson Controls and Tyco International, the subject is coming to the forefront. A fine account of this controversy is published in the European press, Follow the Money. A wealth of financial data and charts are available in this translated version from the column.
Titles, TTIP: CORNUCOPIA FOR SOME INSTEAD OF PROSPERITY FOR ALL makes a salient point.
-Multinationals sit on unprecedented cash reserves, to the tune of $ 3.16 trillion, most of which is being kept in tax havens like Ireland, Luxembourg and the Netherlands, and is increasingly invested in money market funds, which play a key role in the global shadow banking system that provides day-to-day funding to the large global banking conglomerates;
-Mergers and acquisitions, partially in the form of infamous ‘inversions’ meant to shift headquarters to low tax jurisdictions without paying ‘exit taxes’, have again reached record levels; so far 2015 has seen $ 4.2 trillion worth of M&A’s, generating handsome rewards for investment bankers, and are on course to breach again the former, 2007, record (see figure below) (of course, academic research has time and time again demonstrated that most M&A’s are value destroying, rather than value creating);
Norman Pollack writes in a recent essay in Counterpunch, Corporate Inversion: The American Way, explains the shell game very well.
“Off to Dublin, still of course leaving the actual headquarters and operations in America intact. It is significant that Ian Read is an accountant (perhaps the coming occupational training ground for corporate CEOs), and Sommer notes, “Pfizer represents a textbook case of complex global accounting.” What is meant here, besides sophisticated tax evasion? Perhaps nothing, except that, he goes on, Pfizer “has been deftly exploiting tax anomalies for years, yet it is evidently convinced that it can do even better with a foreign tax address.” Taxation raises the question of, if not gives birth to, the multinational corporation, an argument raised (in its favor) by Roman Weil, University of Chicago professor emeritus, the Booth School of Business, whose textbook, “Financial Accounting,” 14th edition, praises Pfizer to the hilt for its “unexceptionable” work. Weil reasons (?) that US multinationals are wary about repatriating foreign profits: “’It’s not surprising,’” he writes, “’that companies like Pfizer and G.E. want to keep those dollars abroad so they don’t have to pay those [US] taxes {which he estimates at 25%]. Sommer is quick with his rejoinder: Pfizer claims 25% as its “’effective tax rate,’” yet, he observes, “if you’re not an accountant, that phrase, ‘effective tax rate,’ may not mean what you think it does. It’s not what the company actually pays…. When, if ever, Pfizer would pay enough to reach 25 percent is far from clear.”
Both of these accounts are excellent and deserve a review for their details and specifics. Nonetheless, what do the magic Irish leprechauns have to say about this rush to find their new corporate pot of gold?
The Irish Times published the following in Government distances itself from corporate inversion mergers.
“The Government has sought to distance itself from criticism over the latest corporate tax inversion with Minister for Jobs, Enterprise and Innovation Richard Bruton saying Ireland has no interest in winning such deals.
“I think the first thing to say is that this is not a feature of the Irish tax code, it has absolutely got to do with the US tax code. We are not interested in winning such inversions. We’re not interested in them at all, the in fact cost us money,” he said.”
Analysis: ‘Inversions’ again haunt Ireland’s tax regime by Peter O’Dwyer and Eamon Quinn in the Irish Examiner goes on to nicely sum up the reality of the corporate ex-patronization off American shores.
“A Department of Finance spokesman said yesterday that Ireland was not the only country cited as an inversion destination, adding “we only have and want real substantive Foreign Direct Investment — the kind that brings real jobs and investment into Ireland”.
“With regard to some of the recent mergers and acquisitions into Ireland, it is encouraging to see substantial Irish companies being involved in such high-profile transactions.
“However, in relation to transactions that may not involve real substance in terms of jobs and investment in the Irish economy, Ireland does not encourage such transactions,” the spokesman said.
Inversions, the department also argued, are motivated primarily by US tax issues and as such any steps to address those issues would be welcomed.”
This background clearly describes the sharp contrast with the economic nationalism that Donald Trump is articulating in the U.S. Presidential race. When Pat Buchanan asks, Is Trumpism the New Nationalism?, he alludes to economic patriotism. Within the corporatist culture, global enterprises have no homeland. They only maintain maximum after tax returns.
Ireland has made the leap to elevate the Emerald Isles, as a domicile of convenience. Even if their government officials want to place the entire blame on U.S. tax regulations, they allow this rush for the lucky nuggets. Regretfully, that is exactly the inevitable mindset that a globalist adopts, when attempting to justify an inducement to attract transnational operations to transfer their corporate flag to a greener pasture.
Without any doubt the U.S. tax code works against the true national interest, while enriching the corporate executives from the Davos crowd of beautiful people. Inversion is a shady procedure designed to further undermine the real economy back home.
As long as the corporate suites remain in the skyscrapers of NYC and transfer their accounting filings to tax havens, the Federal Treasury will continue to run billion dollar deficits.
Forbes wastes no time in criticizing the New York Times Hypocrisy on Corporate Taxes Reaches Record High.
“If it is unpatriotic to minimize your corporate taxes by moving your headquarters out of the country, then it should be just as wrong to collect a tax break in exchange for not moving your headquarters out of a city (or state). Before the editorial board of The New York Times criticizes corporate inversions, they should probably check whether their employer has also benefited from tax-minimizing strategies.”
This frame of mind illustrates why the entire notion of personhood status for corporations is so demented. Obviously there should be no corporate subsidies of any kind. Nevertheless, in the inversion world we all live in, the ritual of paying the least tax determined by the best legislation that money can buy continues in full force.
James Hall – February 3, 2016
– See more at: http://www.batr.org/corporatocracy/020316.html#sthash.7vWxwuOM.dpuf