Jennifer Karr

Document Type

Article

Abstract

Corporate tax inversions are a growing tax avoidance trend. In a corporate tax inversion, an American corporation changes residence from the United States to a foreign jurisdiction, generally without much or any change in its business operations, in order to avoid paying U.S. taxes. Many industrialized countries, such as the U.K. and Ireland, now offer much lower corporate tax rates than the U.S., and have become popular destinations. Traditionally, spectators have attempted to evaluate the morality of corporate decisions. In some ways, this makes sense, given recent Supreme Court cases such as Hobby Lobby and Citizens United, which have pushed corporations further toward personhood. At the same time, corporations are supposed to act in the best interest of shareholders, whether or not their actions are moral. For this reason, this Note ignores the moral nature of a corporation’s decision to invert, and instead assesses the U.S. laws which permit such inversions. Laws are analyzed through the lens of the three main theories of morality—deontology, utilitarianism, and Aristotlean virtue—as well as corporate social responsibility. In determining that corporate tax inversions not only have a negative impact on U.S. small businesses and general taxpayers, but often host countries as well, this Note offers four workable solutions. First, Congress should pass the Stop Corporate Inversions Act, which buffs the already active Internal Revenue Code § 7874. Second, the Internal Revenue Service should issue regulations in the spirit of Internal Revenue Code § 367 that will provide better guidelines for corporations that wish to move abroad. Third, the definition of “corporate residence” should be altered to include corporations with U.S. management. Fourth, intellectual property should be included in Subpart F. Finally, when passing legislation regarding corporate inversions, Congress must ask certain questions based in the three theories of morality in order to pass more moral laws. A moral body of laws will help to lessen the tax burden shifted to small businesses and general taxpayers by corporate tax avoidance. At the same time, a moral body of laws should provide benefits to corporations which are truly changing their place of residence for business purposes.

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