The number of U.S. companies reincorporating overseas has shot up considerably in recent decades.
Nearly twice as many companies (47 in all) have shifted their corporate tax paying duties abroad since 2003, or almost double the amount that did in the twenty years prior, according to data from Congressional Research Service (CRS). And the acceleration is only slated to continue: At least another 12 are currently planning to do the same, according to CRS.
Why all the reincorporation, or tax inversion, as the practice is often known? Corporate tax breaks.
There are a number of advantages inherent in reincorporating, including the likelihood of more fluid overseas acquisitions and lower borrowing rates due to increased cash piles. But when a company reincorporates, what it's really doing is shifting its corporate citizenship; and when a company shifts its corporate citizenship, what it's really doing is trying to pay less in taxes. America's dreaded 35 percent corporate tax rate, as we've noted before, is plenty higher than that of, say, the U.K., which hovers closer to 20 percent.
Since reincorporating outside of the U.S. is not only perfectly legal but also likely to prove fairly lucrative, it's hard to blame any company capable of making the move for at least trying to do so. It has, after all, resulted in the stockpiling of some $1 trillion (paywall) in cash, which is now believed to be sitting overseas as a result of such maneuvers.
But while the act of reincorporating abroad affords a company quite a few advantages, it also poses its fair share of problems. Most immediately, it means less money contributed to U.S. public coffers, but cash accumulated abroad also often ends up sitting dormant, since reincorporated companies can neither invest in new projects in the U.S. nor return any of that extra dough to their shareholders. The practice has earned good deal of public scrutiny, too. Pharmaceutical giant Pfizer saw plenty of public and political backlash during its recent attempt to reincorporate overseas, and Walgreen's, which is currently considering reincorporation, could face the risk of contradicting the "quintessentially American brand" that it has built.