America has among the highest corporate income taxes in the world and a growing number of domestic firms are merging with foreign companies in order to reduce their tax burdens.
According to the Wall Street Journal, the race among companies to sidestep U.S. taxes reached a fever pitch as two drug firms, Illinois-based Abbvie and Pennsylvania-based Mylan Inc., unveiled foreign mergers that will all them to slash their tax rates. The tie ups represent the latest in the growing craze for so-called inversions, which occur when an American company purchases a foreign target and adopts its lower tax rate or establishes a holding company in a nation with a low tax rate.
For a time, these deals were mostly in the pharmaceutical industry, but are now becoming more apparent in retail and manufacturing segments. Since the beginning of 2013, 19 inversion deals have been announced, with 14 coming this year alone. These tax friendly corporate moves result in a domino effect, with executives in other companies worried about being left behind. The deals can shave hundreds of millions of dollars from corporate tax bills primarily by shielding money earned in other countries from the reach of the U.S. treasury.