Another long silence ...

While on sabbatical, I've been traveling again, mixed personal and work.  Recent locales: Paris, Giverny, Vienna, Budapest, now Vienna again, all fantastic places in very different ways.  I'll be back in NYC on Wednesday.

While away, I've noticed a disagreement about U.S. corporate inversions among 2 friends, Ed Kleinbard at USC Law School and Kim Blanchard at Weil Gotschal.  Ed's views on inversions are well-known, and I generally agree with them (although his approach and mine to U.S. international tax issues certainly differ in some respects - e.g., I am more hostile to the foreign tax credit and more leery about how far we can push residence-based WW taxation of U.S. companies even in the short run).

Kim had a recent letter to Tax Notes disagreeing with Ed (who no doubt will be responding very soon).  I read her piece (from afar) as suggesting that Ed views the new wave of inversions as essentially sham transactions that are purely motivated by tax avoidance, whereas clearly some of them may have significant non-tax effects that may even be sought-after and intended independently of the tax benefits.  E.g., if a big U.S. company merges with a big non-U.S. company, then even if they put the latter company on top for tax reasons, and even if the tax benefits of ceasing to have a U.S. company at the very top are appealing, then the deal may be far from a pure paper-shuffling sham.

I don't think that one needs sham transactions to have the concerns about inversions that Ed has been expressing.  The need to have a real and not wholly insignificant merger, in order to get the tax benefits of an inversion, does indeed provide a potential friction that can reduce the frequency of inversions relative to the scenario where it's purely a paper play, but that doesn't prevent one from having concerns about the effects on the U.S. tax base of permitting them to go forward in the face of their often having significant tax benefits that will increase their frequency.

I would tend to favor treating even economically significant inversions as triggering an automatic deemed repatriation ending deferral (at least for a significant % of foreign earnings) for the U.S. company's CFCs (even if they remain such), possibly with deferred payment that bears an interest rate for the deferral.  I also think we need to find our way towards what I call more residence-neutral rules for determining the source of income earned by companies that are active in the U.S. as well as abroad, i.e., addressing the extra opportunities to strip income out of the U.S. that may arise for foreign-headed multinationals.  But in the interim I'd regard inversions as a problem even when they are "real" transactions with significant non-tax effects.