Does Corporate Inversion Lead to Tax Savings?

Does Corporate Inversion Lead to Tax Savings?

Author: Nathan P. Downs

Field: Accounting

Document Content:

This thesis investigates the tax implications of U.S. companies that engage in corporate inversion, a practice where a U.S. corporation merges with or is acquired by a foreign company, establishing the foreign entity as the parent for tax purposes. The study examines whether this strategy results in tax savings by comparing the tax liabilities of eleven companies that have undergone inversion with a matched set of eleven non-inversion companies. The research analyzes pretax income, income tax provision, and effective tax rates over a five-year period, including two years prior to inversion, the year of inversion, and two years following the inversion. Additionally, the study explores the potential for earnings stripping post-inversion, where remaining U.S. profits are shifted to foreign jurisdictions to reduce U.S. tax obligations. The methodology involves sorting total revenue and pretax income by domestic and foreign sources and calculating effective tax rates to identify any significant differences.

Detailed Table of Contents:

• Introduction
• Methodology
• Table 1: Sample of Inverted Firms
• Table 2: Sample of Matched Control Firms
• Oil & Gas Results
• Table 3: Effective Tax Rates for Inverted Oil & Gas Companies