The governments, of course, all are motivated by the same basic urge: to hold on to the tax-revenue streams they’ve created and expand them if possible.
The federal impetus finally seems to have gained traction with the latest move, as Pfizer and Allergan abruptly called off their merger. But some of the lower governments’ actions may be motivated by political more than fiscal impulses.
For example, the City of Philadelphia is attempting to stem the use of inversions by way of a measure which would require any firm that wants to enter into a contract with the city to sign a contract stating that it is not a tax-inversion company, according to McDonald Hopkins, a corporate-law firm. At the state level, the firm said, lawmakers last year introduced 16 bills in 11 states and the District of Columbia aimed at mitigating the use of offshore tax havens by companies based in those states. And Connecticut and D.C. actually passed anti-haven measures. This year, such activity has picked up even more.
A bill in Kansas would establish that a corporation may be subject to state tax laws if it is incorporated in tax havens such as Aruba and the Bahamas. And in Kentucky, a bill requires combined reporting of all business income, disallows tax haven transactions and requires disclosure of all reportable transactions, according to Bloomberg.
Yet, the publication noted that it’s not a slam-dunk case that allowing the use of tax havens actually hurts state revenues: “[T]he volume of empirical data substantiating or refuting the need for tax-haven legislation is vast and often difficult to reconcile.”
And the State Tax Research Institute recently concluded that there is little clear evidence to support the argument that profit shifting to tax havens is eroding the state corporate tax base.
Still, as long as state legislators and governors pursue such legislation either for fiscal or political reasons, or both, more boards likely will have to be dealing with the issue.