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Rules Against Earnings Stripping: Wrong Answer to Corporate Inversions

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  • Gary Clyde Hufbauer

    (Peterson Institute for International Economics)

  • Ariel Assa

    (Peterson Institute for International Economics)

Abstract

The tax-driven expatriation of US corporations is a troubling phenomenon. In a "corporate inversion," a new foreign corporation, typically located in a low-tax or no-tax country, replaces the existing US parent corporation of a multinational enterprise (MNE). The US corporation then becomes a subsidiary of the new foreign parent. Since the US tax treatment of an MNE operating in the United States is sig-nificantly less favorable when the top-tier parent corporation is a domestic rather than a foreign corporation, the inversion transaction averts a substantial amount of US tax. Inversions have attracted adverse attention from tax specialists, media, the US Treasury Department, and Congress. In the wake of September 11, it seemed downright unpatriotic for US firms to invert as a way of skimping on their tax payments.

Suggested Citation

  • Gary Clyde Hufbauer & Ariel Assa, 2003. "Rules Against Earnings Stripping: Wrong Answer to Corporate Inversions," Policy Briefs PB03-07, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb03-07
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    File URL: https://www.piie.com/publications/policy-briefs/rules-against-earnings-stripping-wrong-answer-corporate-inversions
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    References listed on IDEAS

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    1. Gary Clyde Hufbauer, 2002. "The Foreign Sales Corporation: Reaching the Last Act?," Policy Briefs PB02-10, Peterson Institute for International Economics.
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    Cited by:

    1. Gary Clyde Hufbauer & Paul L. E. Grieco, 2004. "Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription," Policy Briefs PB04-03, Peterson Institute for International Economics.

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