US Treasury Could Lose $20bn in Revenue from Corporate Tax Inversions

A nonpartisan congressional research panel has estimated that the US Treasury stands to lose about $20bn in revenue from the so-called corporate tax inversions.

But if Washington prevented companies from moving overseas to gain tax advantages, it could raise an additional $19.46bn (£11.35bn, €14.35bn) over a decade, The Wall Street Journal reported, citing research by the Joint Commission on Taxation.

The Commission's estimate does not take into account ongoing deals such as US-based Mylan's $5.3bn acquisition of Abbott Laboratories' overseas generic-drug business.

The estimate is based on past instances of US tax inversions, wherein firms have executed overseas acquisitions to gain freedom from the US tax system.

Companies can lower their US tax bills by transferring pretax income from US-based operations to foreign parent companies, WSJ said. Some firms also prefer to keep cash overseas, because it becomes taxable once it is brought to the US.

US lawmakers have been debating broader changes to the US tax code, to limit corporate tax inversions.

But the US probably cannot take regulatory action to prevent firms from paying lower taxes through corporate deals that shift their tax residences to low-tax regimes outside the country, the head of the Internal Revenue Service (IRS), John Koskinen, has said.

Low-Tax Regimes

The low-tax regimes currently preferred by companies include Ireland, the Netherlands, Switzerland, Canada and the UK.

Ireland has a 12.5% rate. The UK's rate is 21% and will decline to 20% next year, with no tax on active businesses outside the country.

By comparison, the top US corporate rate is 35%. Companies also must pay US taxes when they send home foreign profits, after receiving credits for foreign taxes.