WWL>Topics>>7-21-14 10:10am Garland: on "inversion" mergers

7-21-14 10:10am Garland: on "inversion" mergers

Jul 21, 2014|

Garland talks with Harry Stein of the Center for American Progress and Alex Brill of the American Enterprise Institute about why American corporations are engaging in "inversion" mergers with smaller overseas companies.

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Automatically Generated Transcript (may not be 100% accurate)

A -- and a bribe police to Ohio and over the weekend but I guess that one week or so reunion than those sure we. A long walk about thing to Erica couple problems in the world the news continuing battle than them at least. Green Hamas and Israel will talk to area Middle East Institute. Expert on this. Also get another word for talking to lose. From the Gaza Strip all the in the 4 o'clock hour. And we've done many many men she improves and Princeton system calls and everything else. But -- what's kind of news we've got another bout going over a brand new prisons. Here in New Orleans and 45 million dollars. Never bring correctly do your share of 14 million more for mentally ill patients in the prison says some. So -- take a look at that and also on national interest world -- -- -- -- So our. Something a stumble and in in reading probe that she knows. The -- -- form a super giant. I never heard him tell the truth but apparently. If not the largest in world war and the largest in the world and it's. Acquiring. Another company is paying 53 billion dollars. In -- -- billion being thrown around every day that that's not show stopper but it company based outside of Chicago. And once it acquires this other company. It's been re incorporated in Britain. And everything a renewed says it's the largest ever merger to seek what they call in the in version. And that it's when I got to actors did too. No idea what inversion is but basically basically. Inked its. Something that while the company to avoid a -- corporate taxes nearly 35%. And by buying some of these companies at least some news reports. Luckily. It is unpatriotic. Cute simply done -- -- taxes. So we thought we'd look at both sides on the we have Barry goes staying with Sharon Stone and Harry would one that I get well. It's Palestine except -- Thank you I appreciated time associate director of physical fiscal policy that. -- -- for American progress. -- you is this. Something that strictly Brady's own avoidance of taxes. That's certainly seemed to be the primary motivation her for a lot of these steel and then you're seeing a real. From the surgeon and -- think that companies. Are going to see that the that the door and to be open to them. Unity you have. When when he come. Companies helped the deal to their shareholders and and to the other into the country that there are there required to -- executives have their day -- and talk about the tax. Advantages of the deal. And that certainly Medicaid in the main reason not the only reason for doing. I've beaten -- many of the headlines c.s says abuse of the -- crude cheating unpatriotic. But it's still legal is that -- It it'd still legally you know that intensity that the biggest scandals of the things that -- illegal com and YouTube are structured in a way that the congress. -- about ten years ago to try to. Content clamped down on these corporate incursions and -- were actually somewhat successful and nap and they need me to do it had been made it harder but that they left the door open. And so what the -- they're doing they're they're using. Front it to door left open -- and breaking the law Patrick currently. He would I went looking for the year other side didn't. Of course hole it dues go to conservative after Rio Group periodicals in this more government says. Inversion does not change -- company's directory. Accompany bruises same tax rate in the US -- -- inversion as a -- both for converting. A company also opposes same tax rates and foreign -- assaults before. And after inversion. Is that -- So the way that they had that. That is very narrowly true but but intentionally equipment we and then read in the United States taxes. Corporate RR corporation. On the world wide basis but with pearl. Which means that if a US corporation earns money -- in you know Great Britain. And but but it would end and if they bring money back to the United States they would play. The difference between the British tax rate and the American tax rate. And -- the big incentive for a lot of these companies to move offshore is that once they're not a US corporation anymore. They don't have to anchor today the United States the difference between. Every year they're being torn countries in the US tax rate members. When we came in offshore that really means that they've moved their draft for tax purposes -- -- stolen and he can. Reasonable definition of the -- an American company -- back and acts as an American company. And and they -- keep third their headquarters here do they keep their infrastructure here or do they literally you moved their location. Oh oops oops. No we're talking about. Conversions they keep their their offices. The deferment usually the race to run out of the United States they're they're off they're still here their infrastructure still here. Really all pitched the only thing that changes it on paper -- its its paper transaction for tax purposes but it it's not a best. They actually happened to their executives and their offices to a country. And the majority of them still remain Delaware registered corporations. At least in the united stricker US what what would happen is that because there now and and again on paper today a foreign company there and their US. Now a subsidiary that's a bit of affection because remember that the US shareholders of the old company still on most of this new company. -- at the US subsidiary would would be. Register effort registered yet in in many cases that the dollar. Her interest in our love to take a break here work on the -- Double ago brigade says but he immoral five to reopen. We're I think everybody versions. -- it's very. Section for review told killed dogs. But it's something that if I'm reading correctly is certainly one day -- not soon but could vote. Big company will -- -- getting companies a lot of this order of Wear bullet form Suk who used. Spending billions of dollars and merging with the overseas companies and the critics of this so called the inversion. And they -- it's on -- three their boarding. Paying tax in the United States. Taking where a lot of benefits for. Where the ball marks on him -- this assumes -- director of this school policy. At center for American Brockman and so. To bury our -- story Monday. Mark my hope. That. I'm I'm I'm in new crosses so try in the locked in mom Monday boring. 11 of things I notice. The company was riding two routes. Shareholders try and explain what was going on. In the -- it's what does change of current version is companies' taxes to future of foreign earnings generated outside and US tax system. A lot of these big companies have. A lot of shareholders in this country. Only saw their paying through taxes -- on the on the side of their shareholders are gonna potentially make more money. -- probably right lower taxes for the for the corporation might mean. A windfall offer for US shareholders on the other hand. They then have to and and and -- -- today they have to get the money from the corporation to the shareholders with the need to -- tack it on well. -- a bid because somebody talents. Look at all -- the shareholders in the of their in the -- high eighties. A ball moved from mom and pop buyers. -- shares of stock. And we're here so many of those locally here against -- -- -- oil. Always wonder if we understand that affect your pocketbook too and you have to report dramatic moment of course we pay the taxes alone. -- of this of the children depends the companies give. Tuned version does not relieve any pre existing tax burden is -- not reduced the tax that in the company would ultimately have to pay. On panels to earnings overseas. That have been deferred under viewers' tax system is -- in. Again I think like earlier it's. Very nearly true but but intentionally misleading and the other dimensions it's very important to remember this is why pharmaceutical companies in particular. Have have been subpoenaed to take advantage of conversion. Well it may be that. Profits are booked oversee super counting purpose that we say they say that day at a profit that returned to Ireland. Oftentimes you your -- to create an accountant tackler who managed. Essentially shipped profits that really ought to be US profits and shift -- into foreign jurisdiction and the reason that you see that the drug companies that that -- profit. On come intellectual property that -- from patents and pharmaceuticals. And what they do it they've been shipped patenting the patent over. That was developed which you know US. Are indeed competition the patent over to their foreign subsidiary and then -- -- the income from the patent it's really far income. -- and other things -- and it's. That's only true -- in Europe. Accent and in terms of where the money actually made. It's quite a lot of the which made in the United States and in the week you know just how much gamesmanship it's going on with with where corporations or profits. It's that you -- 40%. Of all of the foreign profits of US multinationals. In 2011 and and the numbers are pretty consistent year the year 40% of all of the foreign profits getting booked in five. -- country Ireland Luxembourg the Netherlands Switzerland and Bermuda now obviously that don't -- countries do not make up 40%. Of global economic activity. Corporations have gotten very good shifting profitable Baxter election. Look at some of the put their patrols of via a group of seven. And is it it looks like we've united states tax worldwide. Earnings. Rather than just the home location. Did in the double taxation don't they get a double women in I think we're going more than group of seven the does that. -- and there -- other countries around the world I think that's right for the group of that and it's not double taxation because when companies. Bring party backs McClintock attacks by by the United States until they've repatriate the money that they earned overseas back to the United States. On the when they do that they can claim with called foreign tax credits. -- give them a dollar for dollar tax reduction per every at whatever they paid for tax and so for example they paid -- and tax rate of 20%. And then they brought the money back they would get 20%. Credit for all of that money representing the -- taxpayer already paid they don't pay taxes twice. And then they would pay taxes on the difference between the foreign tax rate and the US capture. Well above their argument that at 35%. And about corporate types. Where Williams had of been anybody else and introduce mixes -- of gold to compete worldwide. I'm sympathetic to. Doing that I think -- would make sense to to to a corporate tax reforms that would broaden the corporate tax base and if you could clear enough. Breaks in the system you might be able lower. Accurate so I think less -- some people that that talk about tax reform crop. -- to the problem. You know people in the corporate tax rate highest in it and in the world. -- when I actually hate that rate because of all the breaks in the system and when you're likable because the active tax rate what do corporations actually pay tax at. It's pretty much middle of the road further promote developed countries -- it it's not as if we have a uniquely high corporate tax we have a -- a particularly high rate. We also -- Far more tax breaks and other countries stereo. At every time. I have vote a congressman senator -- Rath Republican on the show. And we'd talk about gridlock. They are very proud. Of the fact that they don't deviate. From what they believe they always say to me. Well we'll go or when there's the the supply that we belong to this organization this is our mission statement of what we believe that. If we go compromised and we're we're not really being true to what we -- we stand for. So there seems to be regardless of the polls of pride. In gridlock and -- on each side of the child. MSC its own and I think in the Senate Finance Committee talking about effectively banning emergence may have this year there's little chance of that happening is. It is not seem like that about to happen it's hard to howl unit -- that the top Republican on the Senate Finance Committee Orrin hatch. Seemed to leave the door open to some kinda. Some kind of action that would target in urgent in particular open it's not clear. What exactly would he would support I think -- the important thing to remember here. Is that congress can stop -- that it wants to go back ten years ago. Days they've meter rules that part of the new US company emerge if they're critical in a foreign company the porn shareholder. Actually. At least 20% of the company. And without stop with the idea that emerged in the post office box in Bermuda. But it still leaves the door open to what you're seeing now at their. -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- But the administration talked about doing in the incoming congress talked about it -- special report ownership from 20% to 50%. And the reading that -- percent makes more sense. Really the question you're asking people who control company at the end -- And so it before and company genuinely by eight smaller US company that makes stupid not headquarters is visible for a larger or it. But little argument company by the smaller foreign company. And then that ultimately -- -- Irish company even -- you know three quarters of the shareholders there from the -- -- US shareholders. That doesn't make -- And and so I think. You know -- you can you can move overseas but when you don't control your own company anymore that's gonna make it. You can't just -- -- -- urgent for factories and that and it's got to make sense if you're actually help the company. And the reason that that I -- extra that. Pat point is that I think sometimes you -- that well hoping that we can do about it at something we can do congress can stop that and if they go. Then. Actually it's being made by some people in congress to vote against stop. It's well within their power. Pirates and a pink color and Cindy's -- little bit better appreciated Tom -- -- and come right back and we'll talk to -- Groups are well. The American Enterprise Institute what you think you would triggering problems. Granted a little technical but basically what we're talking about. Big corporations. Buying up other or merging the bigger companies. Which seldom -- the -- overseas. And once they do that the profits get taxed at a lower percentage. And those with the so certainly been of the the media played on state action when it. Cash and would spill on the corporations to end up making more money for the shareholders. Should congress. The crew of the tensions. Should they go and and and deal with the slow and -- you were American companies can't merge. And change headquarters in change church tent structure. Or lower to act structure out of vehement -- and therefore take money out of our country. All right stay -- -- to those reviews news and welcome. With attempting to. But it would negate celebrity -- I've read. Welcome back. To make sure they're based on your -- still linger quite frankly -- -- them. Bingo ball really reading about them broker. -- Companies. And then about a pharmaceutical giant that I have never heard that is by you know the company for 53 billion dollar. Nothing really unusual about that Google will be used being thrown -- these Newton in financial world. Didn't real -- to open or Brad. It was the latest. In merging. And in version. What conversion was and basically in -- -- -- correctly. Is that playing that some companies or moving overseas merging with -- of the company's proceed to avoid. The 35%. Corporate picture in the state. It's interesting rule. Governor bill pretty jaguar opinion poll. Rendered and scientific -- American companies merging with smaller companies overseas is called and versions of the cost cutting tax evading. 67%. Of it than that it's coming. And though we have Alex Brill and with this solar research fellow with the American Enterprise Institute. To help me better understand the college welcome to the shore appreciative. -- sewed it did that I get are brought an overly some. Clothes the fashion. -- isn't version the merging of two -- news that results in lower taxes. That's absolutely correct that either US based. Multinational corporations are -- US companies. Where is activities. Around the world making profits. Both here in the US and outside the US. They can't they have as as you described it on some have. Engage in the inversion transactions. Where they emerge -- a foreign corporation. And that the end of the day what date today is they've reduced on their tax liability that certainly wanted to motivations behind these deals. But it also should be clear that which taxes that they that they -- on. These companies will continue to pay US taxes. On their US based in com. Do you think of a US corporation making and selling things here in America they are subject to the US corporate tax that 35%. After the -- they will still be subject to US tax -- 35%. The money they -- relate to that taxes that date. Would otherwise go on foreign income so this should be an American company. That might make a profit in Brazil or in China and India Air France or Germany. When they make money in those countries. The current US tax code says that they -- tax here in the United States as well when that money is repatriated. Inversion allows them to get out from under that tax. I don't not all -- -- that stick -- that -- where in the -- repeat. Absolutely so we tax here in the United States we tax. The US corporations on their worldwide income but when they earned income abroad we only -- just to be dead. When net income has brought back to. The consequence of that policy is many large companies at the moment many of them are pharmaceutical companies but others as well they -- profits abroad. And they would have to pay a total charge attack just to bring money home and so they don't they keep the money offshore. And they use that money that's -- that's that they earned him in Mexico where or Spain or Germany. To purchase other foreign corporations instead. Returning home and and take care to share orders something like. And what is the basis. That this hurts a Merrill. Heard some thoughts have been. From an economic perspective it's unclear if there's any harm from a tax and budget perspective they had these companies are reducing -- US tax liability. And that led. Sounding government Democrat including. The Treasury Secretary. Jack -- To. Good argue that this that these transactions should be in some form prohibited. Content and back secretary -- has has called these transactions unpatriotic. And I've got a big break but -- let's say they did that in. And in today's gridlock configurable aggrieved at -- unlikely -- political talk actually gonna happen but if it did. Wouldn't companies just say Kubel -- would do instead. Merging with the company and Britain and keeping. Our physical headquarters here and or just sell everything and moved to one. Absolutely. It's law that should encourage more companies. To be outright bought by foreign companies and it would also encouraged companies. Startup companies. On the knowing the the pressures in the US tax system. Even in companies in Silicon Valley perhaps. They might file their initial paperwork outside the United States so that they never need to convert still get out of this country from the get go. And the tighter we make these rules the more likely you're gonna have on that particular activity. All right lipstick reverse break here if you're listening you part of the group says it's 7% of listening audience. Texas then say this would cost cutting it is not -- boarding taxes that we would benefit from. You agree this great comments questions -- call 26018. Celtic. Told pretty well in the country 8668. Dollar and 08. -- -- drug thing good about incursions. At the statement. Regular in the next question is. Regular Pelletreau who care. Well it's it's a term you use to describe well. As -- like a lot of American corporations doing. Moving overseas -- and other company. Word everything -- -- so of the corporation's European playing. -- -- -- 20%. On corporate taxes and we've got the highest percentage of 35%. Of benefit to shareholders the portions being brow raised more. Is it beneficial. -- those of votes need to federal services in the desert last morality and those offers. Because red that is about -- what should be done about it. And if it's a good idea what should we keep doing him Alex broke with. Words search fellow with the American Enterprise Institute. Alex. One of the the arguments that the Nazi intelligence services. American companies. -- you -- gore pro season merge with a company but no word still registered usually. You keep your head quote physical headquarters here. And it says that because of that and these companies benefit from their location in the US house. And our protection of intellectual property rights. And he merit to that -- Well there there's certainly is merit to the notion that and that -- Intellectual property rights it's a very strong and that a lot of value of being here not the least of which is the quality of the American workforce. How -- the engineers of these corporations are based here in the United States. Commodore educated at state any corporations will continue to pay packed -- it states on the income that they aren't here. And that is that paper tax system where you've earned. Money and pay -- in that jurisdiction. That's -- standard corporate tax. Structure around the world so if you earn money in and in the UK you pay tax on that money in the UK. But the question here is. Should the US government to reach outside of Americans America's borders and start. Taxing the income. Earned by US corporations around the world that that structure which is today's rules. Tom has very uncommon among most major trading partners -- that state. And that's have the policy that I think many US corporations. On finding anticompetitive for them makes it difficult for them to compete. With their. It was similar corporation's headquarters and other countries and that's voted in the tax conversions. One Boortz -- argument on the government side the bench. Against conversions. -- to a 35%. Corporate tax rate -- I don't think. Anybody do the group of seven or anywhere near that are there any heal the country is with the kind of percentage and if if god -- -- argument with keeping. Yet there are no other the industrialized countries with corporate tax rate anywhere near 30%. On the average. Corporate tax rate for developed countries is in the mid twenties and most countries have tax rate. Like that in the mid twenties. So that differential between 35%. And 25%. -- a lot of dollars when -- for a large corporation could be hundreds of millions of dollars in in in tax differences. Depending on the system that there and in terms of the question what's the rationale for from the government side. We've seen a number of Democrats. Opining on this topic in recent weeks has a number of deals have accumulated. Or potential -- have accumulated. On and there are concerned about the drain. The physical -- -- how much money are we losing you know we don't know how many more deals like this might be in the pipeline. -- but it might be on the order of magnitude of a couple of billion dollars a year. And I've been. We're probably Europe when doing shows on Europe. As soon so polluted places that are their health care is cheaper in particular of the pharmaceuticals. Are cheaper. -- what I am always stole is well the reason as you guys in the United States put the bill for -- and development. And I'm reading from. And reported -- you'll vote big helped company. And he says Saddam have the generic medicines from described in the US come from foreign manufacturers. Which have numerous calls to bandages including a lower tax rate. What I would do more were searched in development overseas in order to get cheaper. Of former student groups ourselves. It is it is is that he had nominated the case that the -- health -- is higher here in the United States and his many other places. We have a greater ability to Taipei and therefore the providers of health care services are are charging. More it's might feel like mistakenly -- expensive at times. But relative to some developed countries of course we have far more resources. One of the reasons that we are saving money here. Maybe it's fair to say one of the reasons we aren't spending even more on health care. Is generic drugs generic drugs there are the most common form of a prescription medicine most prescriptions that are in the -- it states are for generic. And those are obviously. Much cheaper they could easily be 7853%. Less expensive than they have a comparable brand version that came product. Alex I know you do important work because I appreciate the time very mode -- it was I think important for us to better understand in this and I think we do. Have a great day. Thanks very much for -- a man constructive.