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Tax Inversion

Published on January 2017 | Categories: Documents | Downloads: 4 | Comments: 0
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Tax Inversion
Tax inversion otherwise known as corporate inversion is the act of re-incorporating a
company overseas in order to reduce the tax burden on income earned abroad. It is the
act of changing the corporations domicile to country having a lower tax rate, while
retaining its material operations in a higher-tax country of origin. Corporate inversion
strategies are employed to help in the reduction of tax burdens.
The process of changing your business's country of incorporation to lower your taxes is
known as “tax inversion.” One such strategy that's become rather popular lately is to reincorporate your business in a foreign country that has lower tax rates.
It is a form of tax avoidance, and will only amount to tax evasion if there is
misrepresentation in the return made by the taxpayer.
There are two ways to execute an inversion strategy: 1
Self-inversion. A company can simply reincorporate abroad in a country with lower
taxes, like Ireland, assuming it already has significant business activity in that country.
Inversion through merger or acquisition. The more common approach is to buy a
small, foreign company where the owners of the acquired company will own at least 20
percent of the newly combined business. The new company can incorporate anywhere
it chooses.
Tax inversion is primarily practiced by U.S. based companies where they exchange
registration with their subsidiaries outside the U.S. to lower their taxes.
For example ABCD a U.S. based company is registered and incorporated in the U.S. It
owns XYZ company as its subsidiary located in Japan. Assuming that the subsidiary is
taxed lower in Japan than the parent company ABCD in the U.S. the latter decided to
use corporate inversion to switch its U.S. registration with the Japanese subsidiary in
order to lower its overall tax burden. Or it may merge with companies domiciled in a
low-tax jurisdiction, and relocate the parent company there to derive tax savings.
Under Philippine tax laws there are no special laws governing tax inversions or
corporate inversions. Further there is no specific provisions under the Tax Code that
specifically mentions the recognition of tax inversions and its legal implications.

1 Mike Periu, President, Proximo International, LLC https://www.americanexpress.com/us/smallbusiness/openforum/articles/how-establishing-a-foreign-presence-can-save-you-millions-in-taxes/

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