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Author: Anton Babkin
Publisher:
ISBN:
Category :
Languages : en
Pages : 59
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Book Description
Corporate inversion, the process of redomiciling for tax purposes, reduces corporate income taxes, but it imposes a personal tax cost that is shareholder-specific. We develop a model, incorporating the corporate tax benefits and personal tax costs, to quantify the return to inversion for different shareholders. Foreign and tax-exempt investors, along with the chief executive officer, disproportionately benefit. We show that an inversion simultaneously reduces the wealth of many taxable shareholders. The model illustrates an agency conflict in which heterogeneity in personal taxes generates a wealth transfer between shareholders. Furthermore, personal taxes offset the loss in government revenue by 39%.
Author: Anton Babkin
Publisher:
ISBN:
Category :
Languages : en
Pages : 59
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Book Description
Corporate inversion, the process of redomiciling for tax purposes, reduces corporate income taxes, but it imposes a personal tax cost that is shareholder-specific. We develop a model, incorporating the corporate tax benefits and personal tax costs, to quantify the return to inversion for different shareholders. Foreign and tax-exempt investors, along with the chief executive officer, disproportionately benefit. We show that an inversion simultaneously reduces the wealth of many taxable shareholders. The model illustrates an agency conflict in which heterogeneity in personal taxes generates a wealth transfer between shareholders. Furthermore, personal taxes offset the loss in government revenue by 39%.
Author: MaryKate MacDonald
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This report examines how U.S. corporate tax inversion announcements impact shareholder value. A corporate tax inversion is where a corporation moves its location of residency to a new jurisdiction with a lower tax rate than that of its original location of incorporation. Corporate operations are usually continued in the location with the higher federal effective tax rate. Since the first U.S. inversion in 1983, there have been more than 75 inversions (Marples & Gravelle, 2016). There has been growing division over the issue of whether or not inversions are acceptable as a result of the U.S. tax base deteriorating. Many politicians have been searching for ways to control the number of inversions through legislation. As a result, inversion trends have been changing due to governmental regulation, international business, and public opinion. For this analysis, data is collected on 49 corporate inversions that occur from 1983 to 2016. Event studies are conducted on individual trends to determine what types of inversions create the most value. Results indicate that pharmaceutical corporations completing merger and acquisition (M&A) inversions in Ireland after 2007 are valued the most by shareholders.
Author: Elaine Laing
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
We examine a sample of corporate inversions from 1993 to 2015 by firms active in the U.S. markets and find that shareholders experience positive abnormal returns in the short-run. In the long-run, inversions have a deleterious effect on shareholder wealth. The form of the inversion and country-pair differences in geographic distance, economic development and corporate governance standards are determinants of shareholder wealth. Furthermore, we find evidence of a negative and non-linear relation between CEO total return and long-run shareholder returns.
Author: Bret Bogenschneider
Publisher:
ISBN:
Category :
Languages : en
Pages : 6
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Book Description
Bogenschneider argues that inversions result primarily from shareholders' inability to replace ineffective corporate management under Delaware corporate law. He contends that the new theory of capital ownership neutrality is based on the counterfactual assumption of fixed capital investments by U.S. multinationals, and not marginal capital investment by a growing company, which is already tax deductible. Bogenschneider also observes that U.S. multinationals typically operate with effective tax rates equal to or less than those of foreign multinationals.
Author: Rita Gunn
Publisher:
ISBN:
Category :
Languages : en
Pages : 69
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Book Description
Corporate inversions - reorganizations that result in relocating corporate tax domiciles from the US to a foreign country - are alleged to cost the US Treasury billions of dollars in tax revenue. Contrary to these assertions, we find that that inverting firms pay no less taxes after the inversion than they did before. Moreover, contrary to the common belief, we estimate that the inversions result in US shareholders realizing $81,415.92 million in capital gains and annual increases in dividends of $9,959.37 million. Thus, paradoxically, inversions are likely to increase tax collections by the US Treasury.
Author: Gregory Day
Publisher:
ISBN:
Category :
Languages : en
Pages : 47
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Book Description
Despite recent legislative and administrative efforts, U.S. corporations continue to engage in a controversial business strategy known as a “corporate inversion.” A U.S corporation performing an inversion must acquire a foreign corporation and then, through a series of complex transactions, restructures in the foreign corporation's country. In light of the United States' burdensome corporate tax code, the inversion process allows formally American corporations to become taxable as a foreign entity, generating sizable tax savings.It is seldom noticed, however, that the inversion trend raises a significant corporate law puzzle regarding the misaligned incentives dividing directors and shareholders. From a corporate director's point of view, inversions are particularly attractive. This is because the process can be structured to reduce a company's tax rate while also lessening management's duty to comply with costly regulatory frameworks. For instance, inverted companies often reincorporate in countries with more management-friendly corporate governance statutes. Likewise, since U.S. exchanges subject foreign incorporated companies to less scrutinizing securities regulations, the inversion process can allow publicly traded companies to minimize costly disclosure, auditing, and corporate governance requirements. But, critically, inversions are puzzling from an investor or shareholder's perspective. Since corporate regulations are generally thought to protect investors, why would an individual invest in a company that has deliberately sought out and reincorporated in a country that provides minimal shareholder protections? In fact, shareholders often vote in favor of, and thus authorize, the very transactions that limit their ability to acquire information and enforce other shareholder rights. So why is the corporate migration trend booming if individuals should disfavor investing in inverted companies and shareholders should refuse to authorize them? Do individuals value the law? Using an original dataset and empirical analysis, this Article explores why individuals appear to ignore something as important -- and as valuable -- as the law.
Author: Tianpeng Zhou
Publisher:
ISBN: 9780438287464
Category : Electronic dissertations
Languages : en
Pages : 81
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Book Description
Author: Amanda Marino
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 0
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Book Description
I examine the effect of administrative authority on shareholder value. Specifically, I study Treasury Regulations related to IRC ℗ʹ7874, which were intended to significantly diminish the ability of U.S. multinational companies to avoid U.S. tax through inversion. I find a negative market reaction on dates when Treasury signals it will strengthen inversion restrictions and a positive reaction when the courts overturn Treasury's attempts. Firms with high likelihood of inversion experience the strongest reaction, consistent with the market recognizing firm-level factors that make the use of this tax strategy more likely. I find that the initial notice related to the regulations elicits a stronger reaction than either the temporary or final regulations themselves. The study broadens our understanding of how shareholders react to Treasury Regulations, and how the intensity of that reaction varies along the path to enactment. It also brings some clarity to a mixed body of research regarding the economic impact of corporate inversions.
Author: Nirupama Rao
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
This paper assesses the economic factors associated with corporate inversions, including the 48 inversions that have occurred since the analysis of Desai and Hines (2002). The analysis presented here is observational, not causal, as it examines how the business activities of firms that chose to invert changed after expatriation. In addition to statistically assessing the equity market's reaction to inversion announcements, this paper examines how firms alter their patterns of employment and investment after inversion. In particular, the paper follows how the foreign shares of an inverting firm's employment and investment change following inversion, relative to comparable non-inverting firms. The behavior of inverting firms following expatriation is assessed going back to 1980 as well as only after the 2004 policy change, which made expatriation through merger with a foreign firm with substantive foreign business activities more attractive. The results suggest that inverting firms have higher shares of the employees and capital expenditures located abroad after inversion relative to changes experienced by similar non-inverting firms. Further, these increases are not attributable to one-time changes due to the inclusion of a new foreign partner's existing workforce and ongoing investments; foreign shares of employment and investment are higher two and more years after inversion relative to the first year just after inversion when any one-time increases would register.
Author: Phillip Fuller
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
Tax inversions are a popular topic of discussion among politicians, consultants, news outlets, and academics. Tax inversions are not a new topic; they were discussed in the early 1990s and in the previous decade. Tax inversion is a tax strategy in which a company reincorporates in another country for tax purposes. Several U.S. firms have merged with foreign firms in order to move their headquarters out of the U.S. Firms have defended their tax inversions by saying that inversions enhanced shareholders' wealth by increasing the firms' efficiencies and/or reducing their corporate taxes. The federal government has attempted to reduce and/or eliminate tax inversions. The government is concerned that tax inversions will reduce the tax base at a time when the federal government is experiencing budget deficits and the national debt is at an all-time high. Furthermore, individuals are increasingly aware of the huge financial disparity between the wealthiest members of our society and everybody else, and they believe tax inversions exacerbate this disparity in wealth. This paper discusses the history of tax inversions along with tax inversion research, and addresses current status of inversions and possible solutions. The purpose of this paper is to help individuals better understand tax inversions.
