INTRODUCTION

Anyone may soarrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury. There is not even a patriotic duty to increase one’s taxes.

– Judge Learned Hand
Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

To invert or not to invert: That seems to be the question many U.S. corporations are deliberating today, particularly in the context of acquisitions of non-U.S. businesses. Although the level of the political and public outcry on the “evils” of inversion transactions is a recent phenomenon, inversion transactions are not new to the U.S. business community. This article provides a perspective on the issue of U.S. companies incorporating in other jurisdictions by means of inversion transactions. It will discuss the historical context, the legislative and regulatory responses, and current events including proposed legislative developments as of the date of publication. Finally, we will offer our suggestions for a reasonable approach to the inversion issue designed to balance the governmental and the private sector concerns.

INVERSIONS: DEFINITION AND HISTORY

What is an Inversion?

An inversion transaction is a tax-motivated corporate restructuring of a U.S.-based multinational corporation or partnership in which the U.S. parent corporation or U.S. partnership is replaced by a foreign corporation, partnership, or other entity, thereby converting the U.S. entity into a foreign-based entity. In a “self-inversion,” the U.S. entity effects an internal reorganization by re-domiciling in another jurisdiction. In an “acquisition-inversion,” a U.S. entity migrates to a foreign jurisdiction in connection with the purchase of a foreign-incorporated M&A target corporation. In this latter type of inversion, the target and the U.S. entity often can be combined under a new holding company in a lower-tax foreign jurisdiction.