Imagine you owned or ran a large company that was making a lot of money. However, instead of seeing all of that money count as profit, you were watching a large portion of it being taken due to the United States bloated corporate tax code. Then imagine that you discovered a legal and relatively simple way to save a bunch of money on your tax bill. What would you do? You would probably jump on board, right?
More to the Story
Before you say yes, there’s more to this story. What would you do if you found out that even though your tax savings plan was legal there were still plenty of people who didn’t like what you were going to do? In fact, suppose the president of the United States was even against it and that he and other lawmakers began lobbying for ways to stop it; what would you do then? Of course, this is not a hypothetical situation at all. More U.S. based companies are considering tax inversions, the practice whereby a company switches its headquarters to a foreign country, on paper, in order to avoid the large corporate tax bills that are so common in America.
The Line Is Getting Longer
In fact, according to reports, several companies are ready to make the move now, including AbbVie and Shire, Applied Materials, Horizon Pharma, Medtronic, and Chiquita Brands. As these deals appear to be increasing and with more companies getting in line to take advantage of them, the blame game is also starting to get more interesting, as it seems that no one is immune to taking the heat.
The Blame Game Heats Up
Most recently, President Obama held a news conference early this month in which he discussed these tax inversion deals. So to whom do you think the president aimed his ire? It wasn’t the companies themselves, or their corporate tax lawyers. No, instead he blamed the accountants. Yep, this is what President Obama had to say:
“You have accountants going to some big corporations — multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States — and these accountants are saying, you know what, we found a great loophole — if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes. Well, it’s not fair. It’s not right.”
Doing Their Job
These tax inversion deals are not illegal and of course, it’s these accountants’ job to help the companies they work for save as much money as they can. So is it really right to blame accountants for these deals? After all, if the companies themselves weren’t lining up to make these moves, would the accountants be helping them do so? Maybe, just maybe, there are other forces at work here that need to take some of the blame. Namely, the U.S. corporate tax code, which at about 35 percent is the highest among the developed world.
Tax Reform Could Make a Difference
Even though lawmakers and other government officials like to point the blame for these deals elsewhere, whether it’s the companies, their accountants or their tax lawyers, perhaps the root of the problem is actually the lack of real tax reform. By focusing on rewriting the corporate tax code, lawmakers could ease the burden on companies and thus make these deals rather pointless. However, until there is real tax code reform, the debate, and the blame game is sure to rage on.