Corporate Inversion

Dictionary Says

Definition of 'Corporate Inversion'


Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.

Investopedia Says

Investopedia explains 'Corporate Inversion'


Corporate inversion is one of the many strategies companies employ to reduce their tax burden. One way that a company can re-incorporate abroad is by having a foreign company buy its current operations. Assets are then owned by the foreign company, and the old incorporation is dissolved.

For example, take a manufacturing company that incorporated itself in the United States in the 1950s. For years the majority of its revenue came from U.S. sales, but recently the percentage of sales coming from abroad has grown. Income from abroad is taxed in the United States, and U.S. tax credits do not cover all taxes that the company has to pay abroad. As the percentage of sales coming from foreign operations grows relative to domestic operations, the company will find itself paying more U.S. taxes because of where it incorporated. If it incorporates abroad, it can bypass having to pay higher U.S. taxes on income that is not generated in the United States. This is a corporate inversion.

Corporate inversion is not considered tax evasion as long as it doesn’t involve misrepresenting information on a tax return or undertaking illegal activities to hide profits. 

comments powered by Disqus
Hot Definitions
  1. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  2. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  3. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  4. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  5. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  6. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
Trading Center