Tax dynamics of (U.S.) corporate expatriations

This article addresses the main issues that corporate inversion transactions (or expatriations) raise both from the perspective of the corporations as well as from that of the policy makers (focusing on the U.S. government). In the first part, the inversion transactions will be defined and the most common juridical forms through which the transaction takes place and the consequent tax treatment will be synthetically described. In the second part, a historical analysis of the phenomenon in the U.S. will be provided. In the third part, the tax motives why American corporations have decided to invert (or may decide to invert in the future) will be investigated. The basic features of the U.S. international tax rules that encourage corporations to expatriate will be investigated. Considering the existence of an international tax regime, and the significant degree of convergence in international tax matters, the conclusions can be clearly adopted by other policy makers. In the last part, an overview of other possible policy tools that may be implemented in the future (in the U.S. or in other jurisdiction) to efficiently prevent inversion transactions will be shown, as a conclusion of the article. More specifically, a change in the definition of corporate residency for tax purposes, the use of corporate governance tools as tax anti-avoidance measures and a reconsideration of the residence based taxation principle will be proposed as possible solutions to prevent domestic corporations from expatriating. Copyright © 2010 The Berkeley Electronic Press. All rights reserved.