Although tax inversions in which U.S. corporations change their domicile to a foreign location are comparatively infrequent events, corporations continued to pursue this strategy because of the potential tax benefits. As a result, in 2003 the U.S. Congress passed Internal Revenue Code (IRC) Section 7874 to restrict corporate inversions, which prevented “naked inversions” that were essentially paper transactions (Webber 2011). However, the law did not completely eliminate inversions, and companies changed their strategies to pursue inversions in European countries with lower tax rates. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered corporate income tax rates, which should substantially reduce the incentive for inversions. However, it is uncertain whether these tax reductions will be permanent, and there are still many countries with no corporate income taxes or rates that remain below the corporate tax rate in the U.S.
The first known inversion occurred in 1983 when...
