CORPORATE TAX INVERSION: A LESSON LEARNED FROM THE UNITED STATES FOR CHINA
AbstractThis article discusses the causes of “corporate inversion” in the United States (U.S.) today. It points out three tax loopholes in the U.S. tax law. They are the worldwide income tax system, the highest tax rate in the world, and no U.S. taxation on foreign-sourced income until dividends are distributed. This article also attempts to compare the U.S. tax law with that in China. The purpose is to explore whether China will suffer from the same debacle of corporate inversion as the U.S. did. It was appalling to find out that, in addition to the same worldwide income tax system, China imposes tax on the foreign-sourced income completely and immediately without a chance of deferring the tax liability. This defect makes the Chinese tax system the worst in the world. There was indeed a lesson to be learned from the U.S. for China. This article further provides an example in determining the tax liability without and with corporate inversion. The purpose is to illustrate the tax savings by using a corporate inversion strategy. In order to curtail the abuse of a corporate inversion, recently, the United States Congress enacted IRC §7874 and the Internal Revenue Service issued Notice 2014-52. This article reveals penalties imposed under these new tax regulations. It also serves as a warning to the Chinese multinational corporations.