Should you leave the U.S. for lower taxes? An interactive guide to legal tax arbitrage


Walgreens is one of the American companies considering moving its headquarters overseas for tax purposes. (Daniel Acker/Bloomberg)

Over the past few weeks, Congress and the White House have been alarmed by the sudden rush of corporations looking to flee the country — or at least, incorporate themselves overseas in order to avoid being taxed on their foreign income.

These are called “inversions” and Pfizer and Omnicom recently tried and failed, but a number of other pharmaceutical companies have pulled it off — and those in progress could deprive the U.S. Treasury of $19.46 billion over the next decade if they’re not stopped, according to a Congressional analysis.

It’s not easy to move your headquarters as a corporation. Congress made it more difficult in 2004, after the first wave of inversions. But there’s still a loophole: Merging with or acquiring a company in a low-tax jurisdiction, if certain stock ownership thresholds are met, will usually do the trick. There are few downsides to that strategy — basic business operations tend to not change at all — and the tax savings are potentially gigantic.

But what if you want to do the same thing as just a regular person?

We know that corporations enjoy many of the legal rights of individuals these days. In this situation, they really have more rights, as Post columnist Catherine Rampell notes today. The number of people renouncing their citizenship for tax reasons has skyrocketed in recent years, as the IRS has stepped up its enforcement of foreign bank accounts, but individuals pay a much higher price — financially, practically, and in the popular consciousness.

“If you ‘merge’ with a foreign person, you’re still subject to U.S. tax,” points out David Kautter, managing director of the Kogod Tax Center at American University, referring to marriage. “For a business, you can keep doing the business in the U.S. that you always did. It’s more serious for an individual.”  

To help you figure out whether or not to become an expatriate, whether corporate or individual, we’ve put together this handy flowchart. Under no circumstances should it be considered actual tax management advice.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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