Article: A Case Study Of Tax Inversion Impacts On Value Creation Journal: Journal of Business and Management (JBM) 2023 Vol.28 No.2 pp.1 - 42 Abstract: Purpose - Over the past four decades, a small number of U.S. corporations have elected to reduce profit taxes by relocating their legal/corporate headquarters to a foreign country with lower tax rates and a territorial assessment system. Companies in the United States have minimized their net income taxes by engaging in \'inversion\' transactions. It is assumed that reincorporation overseas will increase shareholder value by cutting corporate taxes. This article challenges that assumption through a case-level examination of enterprises participating in US-to-Ireland inversions and an examination of their financial operating performance. Method - The analysis involves a review of all U.S. public company reincorporation in Ireland from 2010 to 2014. During these years, seven U.S. public companies \'moved\' to Ireland. The period was selected to maintain access to financial data post-inversion and to avoid the inversion-dampening effect of the 2018 reduction in U.S. corporate tax rates by one-third. The analysis is based on regulatory agency-reported data and assesses major financial metrics of value creation, including operating profit, net income, and return on total assets. Findings - This analysis discovered that inversions do not create additional value from operations based on a rigorous review of all U.S. public company tax inversions in Ireland from 2010 to 2014. Instead, almost every instance of reincorporation to escape high US tax rates lowered the basic financial indicators used to gauge corporate performance. Inversions do not improve management\'s value creation outcomes from an internal value creation standpoint. Limitations - The paper has several limitations. Even though it is a case study, the size of the group analyzed is quite small. The time for study is limited and might well inhibit a definitive conclusion. The focus is on operating metrics alone and does not consider positive stockholding value changes that may have occurred outside the control of company management. The value might have been created for investors through these inversion events even if profitability was not impacted. Implications - The research findings are useful and interesting to academics and U.S. corporations who are considering doing an overseas tax inversion when U.S. tax rates are increased again. Originality - We are not aware of any papers that specifically have questioned the assumption that tax inversions create enhanced profitability for re-incorporation-to-Ireland transactions undertaken by U.S. companies before 2018. Inderscience Publishers - linking academia, business and industry through research

Title: A Case Study Of Tax Inversion Impacts On Value Creation

Authors: John S. McQuilkin; A.J. Stagliano

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: Purpose - Over the past four decades, a small number of U.S. corporations have elected to reduce profit taxes by relocating their legal/corporate headquarters to a foreign country with lower tax rates and a territorial assessment system. Companies in the United States have minimized their net income taxes by engaging in \'inversion\' transactions. It is assumed that reincorporation overseas will increase shareholder value by cutting corporate taxes. This article challenges that assumption through a case-level examination of enterprises participating in US-to-Ireland inversions and an examination of their financial operating performance. Method - The analysis involves a review of all U.S. public company reincorporation in Ireland from 2010 to 2014. During these years, seven U.S. public companies \'moved\' to Ireland. The period was selected to maintain access to financial data post-inversion and to avoid the inversion-dampening effect of the 2018 reduction in U.S. corporate tax rates by one-third. The analysis is based on regulatory agency-reported data and assesses major financial metrics of value creation, including operating profit, net income, and return on total assets. Findings - This analysis discovered that inversions do not create additional value from operations based on a rigorous review of all U.S. public company tax inversions in Ireland from 2010 to 2014. Instead, almost every instance of reincorporation to escape high US tax rates lowered the basic financial indicators used to gauge corporate performance. Inversions do not improve management\'s value creation outcomes from an internal value creation standpoint. Limitations - The paper has several limitations. Even though it is a case study, the size of the group analyzed is quite small. The time for study is limited and might well inhibit a definitive conclusion. The focus is on operating metrics alone and does not consider positive stockholding value changes that may have occurred outside the control of company management. The value might have been created for investors through these inversion events even if profitability was not impacted. Implications - The research findings are useful and interesting to academics and U.S. corporations who are considering doing an overseas tax inversion when U.S. tax rates are increased again. Originality - We are not aware of any papers that specifically have questioned the assumption that tax inversions create enhanced profitability for re-incorporation-to-Ireland transactions undertaken by U.S. companies before 2018.

Keywords: Tax inversion; tax-motivated reincorporation; corporate income tax; shareholder value creation.

DOI: 10.1504/JBM.2023.141297

Journal of Business and Management, 2023 Vol.28 No.2, pp.1 - 42

Published online: 05 Sep 2024 *

Title: A Case Study Of Tax Inversion Impacts On Value Creation

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