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Inversion Issue Comes Home to Roost for CEOs  

Tax-inversion schemes have become a political hot potato as well as a major consideration of corporate financial strategy for many CEOs and business owners. And that means they need to demonstrate a stronger grasp of the issue than ever.

There’s unprecedented noise from all directions around the issue of relocating a corporate domicile by means of acquisition to avoid high national tax rates. The Obama administration, some in the Congress and anti-corporate activists have been inveighing against the practice because they say it undermines the federal tax base to the benefit of investors, while American corporate chiefs and sympathizers have been defending inversion because draconian tax rates in their home country compel them to investigate alternatives.

“The rules must be changed so that the IRS is not forced to recognize a ‘move’ offshore by a corporation that has not moved at all in real life.”

Inversion first arose as a transatlantic kerfuffle when Pfizer wanted to buy AstraZeneca earlier this year and become headquartered in Europe, eyeing a tax rate as much as one-third lower than the typical 35% in the United States. Then a closer examination by media and progressive interests highlighted a number of other American companies that were angling to do the same thing. So Walgreen buckled under the pressure and said it will proceed in acquiring the Switzerland-based Alliance Boots chain of drugstores in the UK, but maintain its U.S. headquarters.

Walgreen won some points with consumers, employees and political interests in doing so, even though many concluded that CEO Greg Wasson simply recognized the handwriting on the wall and made the only rational decision he could after inversion became such a political and media issue. “We’d like to see more economic patriotism like that demonstrated by Walgreen,” opined the Lee Enterprises newspapers in Wisconsin.

Now heads of other companies must consider whether to use the Walgreen move as a model, as inversion opponents sense the momentum is on their side. “The rules must be changed so that the IRS is not forced to recognize a ‘move’ offshore by a corporation that has not moved at all in real life,” a Huffington Post politics columnist said.

About dale buss

dale buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.