Okay, so it's no longer attractive to merge two large companies, then set sail for cheaper shores. You probably weren’t planning to anyway. But what most CEOs don’t realize is that the Tax Inversion Rule has additional ramifications that could affect all companies.
New global digital business models are a source of acute tax uncertainty today. Simple tax questions—where did this transaction take place? Where was this software developed? Can have complicated answers in an interconnected world.
By now, American companies seeking to lower corporate taxes by merging with foreign-based outfits—in so-called “tax inversion” deals—have become political punching bags.
You may have thought this trend was behind us, but “tax inversion” acquisitions are still going on across America’s borders, despite U.S.-government efforts to curb them. As a result, many boards are still faced with the difficult choice between shareholder value and patriotism.
Leaders must always look ahead and take action today against what seems like an uncertain tomorrow.
If the U.S. middle market—which employs 32 million people—were a country, it would have the 4th largest GDP in the world, according to commercial lender CIT. In addition, it takes in more than $6 trillion in revenues and creates 25% of all U.S. jobs. Based on its size, it would not be difficult for the middle market to effect change, and when it comes to corporate taxes, that’s exactly what the collective group is trying to do.
More governors than ever understand and embrace the idea that cutting and reforming taxes is the best way to improve the business climate, promote job creation, and ensure economic growth. So while politicians in Washington may not have gotten that message, about 20 Republican governors are moving forward with pro-growth tax-relief initiatives in 2015. That is on top of the 14 states whose 2014 tax cuts will take effect this year.
For many years, the IRS has been tracking the migration of citizens and their incomes across state lines. Since 1995, $2 trillion has migrated from high-tax states to those with reduced tax burdens. But it’s not just individual people that vote with their feet. Companies are voting, too, and the consequences will change the country’s socio-political landscape.
Wyoming, Florida, and Indiana rank among the ten best states for taxes on business, while companies in states like New York, New Jersey, and California must struggle with the worst tax codes in the country, according to the newest edition of the Tax Foundation’s State Business Tax Climate Index.
Last Sunday, Feb. 3 marked the 100th anniversary of the ratification of the 16th Amendment, which enabled the establishment of the U.S. federal income tax. The century-long history of the income tax has been marked by more and more taxpayers paying higher and higher amounts of tax. As Americans get ready for yet another tax filing season, take a look at how the income tax has morphed from a tax only a handful of people actually paid in 1913 to behavior-changing deal it is today.