Tax Inversions Come with a Big Price Tag for Uncle Sam

Tax Inversions Come with a Big Price Tag for Uncle Sam

iStockphoto/The Fiscal Times

The drugmaker Mylan was founded in West Virginia and maintains its world headquarters in Pennsylvania, but for tax purposes it’s been a Dutch company since 2015. This little bit of geographical magic was made possible through a complicated tax maneuver known as a corporate inversion, in which Mylan acquired the generics business of Abbot Laboratories, headquartered in Netherlands. The move is expected to drive Mylan’s U.S. tax rate from 25 percent down into the teens over the next few years.

According to a study released by the Congressional Budget Office on Monday, tax inversions are all too effective in reducing corporate tax bills. The CBO looked at U.S. companies that executed inversions from 1994 to 2014 and found that their tax expenses fell by an average of $45 million in the year following the maneuver.

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The overall effect on the tax base in the U.S. is quite powerful. The CBO expects corporate tax revenues to be 2.5 percent — or $12 billion — lower in 2017 than they would have been as a result of inversions and related strategies for moving profits to lower-tax areas.