Why Corporations Avoid Taxes Through Inversions: How To Fix the United States Tax System

The current United States tax code regarding inversions and collection of foreign taxable income is outdated in a heavily globalized world market. Multinational corporations have played games to circumvent the current inversion tax code, Section 7874, in order to lower their effective tax bill. The avoidance of taxes stems from the high corporate tax rate combined with the United States’ worldwide taxation policy, which few countries in the developed world implement. The fear for United States politicians and citizens alike is that the current trend of tax inversions will increase to the point of an exodus of corporations to tax havens. This paper will begin by analyzing inversions, from both a corporate view and a government view. It will delve into why inversions have become so prevalent today. This paper will offer a proposal to prevent unfair inversion practices by U.S. corporations and make suggestions to remove the root of the problem: a high corporate tax rate. Ultimately, this paper will conclude that an adaption of the current inversion prevention provision combined with lower taxes will not only benefit the U.S. corporations, it will maintain the current government tax revenue received from corporations, and increase cash flow into the United States