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US IRS continues to lose battle to effectively tax corporations (Continued)

About one year ago in a previous blog article, we commented on corporate “mergers by inversion”, which is the attempt by a US-based company to buy/merge with a UK-based company in order to reap significant tax benefits due to much lower corporate tax rates in the UK company. The biggest example given was the attempt by the US-based drug company Pfizer to buy/merge with UK-based AstraZeneca. This attempted merger has since been thwarted in part because of changes made in the US tax code.
However, the changes in the tax code do not affect US companies which had already completed their inversion before the changes in the tax code went into effect. In fact, it appears that most companies (the majority are pharmaceutical companies) that were interested in this form of tax-dodging were clever enough to make this change before the tax changes took place. For example, the formerly Pennsylvania-based Endo Health Solutions acquired Paladin Labs of Ireland in Q4, 2013 to become Endo International PLC. Since then, the Ireland-based company has boldly made or announced three acquisitions of US pharmaceutical companies totaling $8 billion. In total over less than 2 years time along with companies such as Actavis Pharmaceuticals and Valeant Pharmaceuticals, formerly US companies have acquired or have agreed to acquire over $125 BILLION of mostly US companies. This not only decreases the US tax-base, but also creates the feeling of loss for Americans who are aware of such shenanigans, sort of like being a Cleveland Cavaliers fan watching the talented but narcissistic LeBron James take his talents to South Beach, or a Miami Heat fan watching LeBron James take his talents to the beaches of Lake Erie.
While the US authorities were well-intentioned to finally change the tax code to make it less appealing for these inversions to be consummated in the future, the US IRS was clearly late to the party, forcing all remaining, law-abiding, tax-paying US companies and citizens to pick up their tabs.

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