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3 Corp. Bus. Tax'n Monthly 3 (2001-2002)
Practical and Policy Considerations in Corporate Inversion Transactions

handle is hein.journals/corbus3 and id is 515 raw text is: C O R P 0 R A T E  B U S I N E S S  T  X A T I O  N  M O N T H L Y
PRACTICAL AND POLICY
CONSIDERATIONS IN CORPORATE
INVERSION TRANSACTIONS
CRAIG M. BOISE AND JAMES C. KOENIG

INTRODUCTION
erhaps the hottest topic in U.S. tax circles
over the past few months has been the
growing number of U.S. corporations com-
pleting or announcing transactions that move
their domicile offshore through some form of cor-
porate inversion. Companies recently completing
or announcing inversion transactions include
Foster Wheeler Corporation; The Stanley Works;
Nabors Industries, Inc.; Cooper Industries, Inc.;
Tyco International; and Ingersoll-Rand Company.
In such transactions, the shareholders of a U.S.
corporation typically become shareholders of an
offshore holding company, which in turn becomes
the parent of the U.S. corporation.
The offshore holding company typically is organ-
ized in a tax haven jurisdiction such as Bermuda,
Antigua, the British West Indies, or the Cayman
Islands. Notwithstanding the recent trend, and the
fact that a great many U.S. corporations have been
advised by accounting or consulting firms to con-
sider reincorporating abroad, the number of corpo-
rate inversion transactions completed to date
remains small, and for good reason. There are sig-
nificant tax and other obstacles that must be sur-
mounted to consummate a reincorporation abroad.
The Stanley Works clearly illustrates these difficul-
ties. The Connecticut-based toolmaker finally scut-
tled its proposed inversion after a torrent of nega-
tive publicity and challenges to the transaction
from sources as disparate as the Connecticut
Attorney General and organized labor.2
Craig M. Boise and James C. Koenig are attorneys at
Thompson Hine LLP in Cleveland, Ohio, specializing in
domestic and international mergers, acquisitions, and joint
ventures.

The short- and long-term tax advantages of
inverting must be carefully weighed against the
taxes that may be immediately imposed on both
the U.S. corporation and its shareholders. Adding
to the difficulty of evaluating the benefits of an
inversion transaction is the fact that a number of
measures have been introduced in Congress to
penalize inverting corporations, and some states
have jumped into the inversion fray as well.3 These
measures have been fueled by the negative reaction
of the public to the migration of U.S. corporations
offshore, and by the perception that such transac-
tions are unpatriotic. The concern that this percep-
tion may be widely shared by existing or potential
shareholders and thus negatively impact a compa-
ny's share price has been another factor that has
restrained the pace of inversion activity.
This article provides an overview of these and
other issues that should be considered in deter-
mining whether reincorporating abroad through
some form of inversion transaction makes sense.
We first describe the particular U.S. tax difficulties
faced by U.S.-based multinational corporations
that may make offshore reincorporation appeal-
ing. Next, we address the mechanics of corporate
inversion transactions and describe how the exist-
ing tax rules apply to such transactions. We follow
this with a summary of the Treasury Department's
view of inversion transactions and a description of
the anti-inversion legislation that has been pro-
posed. We conclude with a question-and-answer
summary of various issues that should be consid-
ered before reincorporating abroad.
PROBLEMS WITH THE U.S.
WORLDWIDE TAX REGIME
The United States imposes income tax on the
worldwide income of U.S. persons. A U.S. person,

SEPTEMBER  2002

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