American companies need to stop resorting to tax inversions

Recently, major American brand companies, most notably Burger King and pharmaceutical company Mylan, have been able to avoid U.S. taxes through tax inversions. Brought under fire because of the recent news, tax inversions are best known as loopholes corporations use to avoid U.S. taxes by merging with foreign companies and shifting their headquarters abroad. The move is viewed as a corporate maneuver to boost profits as well as an unpatriotic strategy for brands closely tied to the United States.

Tax inversions from a corporate standpoint might seem like a fruitful venture. A company needs to boost profits and does not need taxes weighing it down. To avoid the exorbitant U.S. corporate tax rate, a company shifts its headquarters to another country and effectively avoid paying those U.S. taxes. The move ostensibly makes sense, but it masks the true issue at hand. The jettison of major American companies to avoid taxes speaks to the need to lower the U.S. corporate tax rate so companies do not leave, as well as boost and encourage new companies to set up shop right here in America. Tax inversion is just a feeble attempt by companies to avoid a larger issue that compels a nuanced and complex solution.

Burger King is the latest American company to utilize tax inversion. The Miami-based company announced two weeks ago that it would merge with Canadian-based doughnut and coffee juggernaut Tim Hortons. The idea of Burger King, one of the most recognizable American brands, forsaking its origin country for Canada speaks volumes.

When the sixth-largest fast food company in the world leaves because the tax rate is too high, that’s a cue to start having serious discussions about corporate tax reform. Tax inversions are a slippery slope, not the solution to a more complicated issue that needs attention. Once companies start to leave for tax purposes, who is to say that future startups won’t feel discouraged and base their headquarters elsewhere as well? For the corporate world, the practice of tax inversion is simply executing a fiduciary obligation to shareholders. The reality is that it sets a dangerous precedent for companies to dictate what taxes they wish to pay or not, and it disincentivizes entrepreneurship stateside.

Walgreens, the Deerfield, Illinois, drug retail chain, had plans to use tax inversion but abandoned those attempts after public outcry over the practice. Investors in the company became upset because a deal was completed without shifting the company overseas. This issue illustrates the strong divide and disparity between Wall Street and the public. Investors want to inflate their profits, while the public believes American companies should stay put. If Wall Street is so adamant on the practice of tax inversion, then it begs the question: If the roles were reversed and ordinary Americans used government money in the form of food stamps because they could not afford to purchase food, how would Wall Street respond? Investors and corporate executives simply cannot use methods that satisfy themselves and their profit margins.

In this tax inversion issue, the only thing that needs to be inverted is the logic behind abandoning your country to pay lower taxes — in Canada.
Athanasius Georgy is a sophomore majoring in biological sciences. His column, “On the World Stage,” runs Thursdays.