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Posted on in Taxation Law

Inversion, or the process by which a corporation moves its base to a foreign country to avoid corporate taxes in the United States, has been a favored tool to avoid taxes for years now. However, in the future, new rules could possibly slow down the rate of inversions.

Lawmakers have proposed new rules that they believe will make it less attractive for companies to move their bases overseas, to avoid taxes. The rules have been specially designed to discourage inversions, and prevent the large volumes of lost tax revenues as a result of these moves by corporations.

The new rules are meant to suffocate corporate inversions, and discourage such moves in the future. The policies are aimed at making it harder for companies to move their bases overseas, and to make it less profitable for them to do so. Typically, during an inversion, an American company will move its tax base to a country outside the United States, where the taxes are much lower. American companies usually prefer countries like the United Kingdom or Ireland. In such cases, it is only the tax base that is moved overseas, and the administrative headquarters of the company continue to remain in the United States.

Tagged in: Inversion

Burger King recently announced that it will soon acquire Tim Horton's Inc. of Canada, and will move its base to Canada as a result. The deal is backed by billionaire Warren Buffett, who is already under criticism because the move amounts to inversion.

Recently, Burger King announced that it had signed an $11 billion agreement to buy Tim Horton's, which is the one of the largest coffee- and- doughnut chains in Canada. This falls under the "inversion" category, and Burger King's headquarters will now move from Miami to Canada. It helps that Canada has a much lower tax structure compared to the United States. Burger King shareholders as a result of the move, will also be protected from capital-gains taxes.

Inversions, or corporate moves overseas like these, are mainly meant to save corporate taxes, and such inversions have been criticized roundly by lawmakers. The White House recently pitched in, saying that such companies that want to move outside the United States and move their bases to foreign lands simply to avoid taxes are being unpatriotic. Burger King denies that minimizing taxes is behind its deal. It says that the deal is aimed at capturing new growth opportunities.

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