Search for:

In brief

Many analysts have credited the enactment of the Tax Cuts and Jobs Act (TCJA) for removing many of the incentives and benefits of a US multinational inverting or redomesticating to a foreign jurisdiction, such as Ireland or the UK, as part of a merger or acquisition of a foreign company. The cross-border merger and acquisition activity of the last two-and-a-half years would suggest that the analysts are correct, as there have been no major corporate inversions involving US multinationals since the enactment of the TCJA in December 2017.

In the immediate years leading up to the enactment of the TCJA, representatives of many US multinationals met with Congressional members and staffers discussing the US corporate tax and US international tax systems. Many times, the discussion would be as follows:

Vice President of Tax of US Multinational: The US corporate tax rate is too high at 35%. Our foreign competitors are in countries with tax rates somewhere in the 20s or even lower. The US has to get the rate down — to at least 27 or 28%. Getting the rate down to the low 30s is not enough to make a meaningful difference.

Congressional staffer: There is bipartisan interest in getting the corporate rate down. Senator Ron Wyden has a bipartisan plan in which the corporate rate is 24%. Senator Ben Cardin has a plan with a corporate rate of 17%. In addition, Senator Orrin Hatch has stated that he would like a rate in the low 20s. Moreover, the President wants 15%.

Vice President of Tax of US Multinational: The international tax system also has to be reformed. We have to be able to access our offshore cash. Bringing the cash back and being taxed by the US at a high rate does not make sense.

Congressional staffer: In terms of accessing offshore cash, a territorial type system would allow that access but so would a worldwide no deferral system — just treat all offshore income as Subpart F income.

Vice President of Tax of US Multinational: That could be a nightmare for us — a high corporate tax rate and full tax with no deferral of offshore earnings. If that were the case, we would have to look at taking matters into our own hands.

Congressional staffer: Inverting?

Vice President of Tax of US Multinational: Yes, that is what we are currently looking at and is something we would look at with a high corporate tax rate coupled with full tax and no deferral on offshore income.

And in one discussion with another large US multinational:

Vice President of Tax of US Multinational: There is no way we could invert. We are just too large. However, if you could get the corporate tax rate down to 15%, as the President has proposed, we would support a worldwide no deferral system at that rate.

Congressional staffer: No territorial?

Vice President of Tax of US Multinational: No territorial. Worldwide, no deferral — but the corporate tax rate would have to be at 15% or lower, 15% would be our break-even.

One of the drivers of the corporate and international tax changes in the TCJA was a response to corporate inversions. Significantly lowering the top corporate tax rate from 35% to 21%, coupled with a move from a worldwide deferral system to a hybrid/territorial-type system, was designed, in part, to take the tax incentives out of inverting. In other words, one goal of the TCJA was to keep the tax domicile of US companies in the US. Many Democratic members wanted to enact barriers to prevent US multinationals from inverting, while many Republican members wanted to reform the tax system making it more favorable to US-domiciled companies and thereby removing the incentive to invert. With the TCJA being drafted and passed solely by Republicans, the approach was to make the tax system more favorable for US-domiciled companies, although several barriers to inverting were also enacted.

The Democratic nominee for President, former Vice President Joe Biden, has proposed raising the corporate tax rate from 21% to 28%, doubling the tax on offshore income (Global Intangible Low-Taxed Income (GILTI)) from 10.5% to 21%, repealing the exclusion from US tax of the 10% return on offshore tangible assets (Qualified Business Asset Investment (QBAI)) and a 10% “Made in America” tax credit. These proposals, while increasing the corporate tax rate by one-third to, what was generally viewed as a critical break-even point, 28% during the enactment of the TCJA, would shift the US international tax system from the current hybrid/territorial-type system to essentially a worldwide system without deferral. If these proposals were enacted into law, would that create greater interest and incentive for US corporations to invert as part of an acquisition of a foreign corporation? Would it make certain US companies attractive acquisition targets?

One of the former Vice President’s tax proposals is to “implement strong anti-inversion regulations and penalties.” Some have argued that additional provisions are unnecessary under the current law because of the lack of major public corporate inversions since the enactment of the TCJA, the tightened regulations under sections 385 and 7874, and the global adoption of the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting project’s final recommendations. It is unclear what additional tools will be proposed or needed if the corporate income tax rate increases and the US moves away from a hybrid-territorial system. Additionally, if the Inclusive Framework reaches agreement on Pillar 1 (transfer pricing) and Pillar 2 (GILTI and BEAT-like rules for all), it may not be attractive to move to another jurisdiction.


Christopher H. Hanna joined Baker McKenzie as Counsel in January 2019. He is the Alan D. Feld Endowed Professor of Law and the Altshuler Distinguished Teaching Professor at Southern Methodist University. Professor Hanna has been a visiting professor at the University of Texas School of Law, the University of Florida College of Law, the University of Tokyo School of Law and a visiting scholar at the Harvard Law School and the Japanese Ministry of Finance. In 1998, Professor Hanna served as a consultant in residence to the Organisation for Economic Co-operation and Development (OECD) in Paris. From June 2000 until April 2001, he assisted the US Joint Committee on Taxation in its complexity study of the US tax system and, from May 2002 until February 2003, he assisted the Joint Committee in its study of Enron, and upon completion of the study, continued to serve as a consultant to the Joint Committee on tax legislation. From May 2011 until December 31, 2018, he served as Senior Policy Advisor for Tax Reform (Republican staff) to the United States Senate Committee on Finance, working extensively on the Tax Cuts and Jobs Act of 2017.


Joshua D. Odintz is a partner in and on the management committee of Baker McKenzie’s North American Tax Practice Group. Joshua held high-level government positions with both the US Department of the Treasury and the Senate Finance Committee. He previously served as a Senior Advisor for Tax Reform to the Assistant Secretary at the US Department of the Treasury, where he advised Senior Treasury officials on tax reform options and issues. Joshua also served as the Chief Tax Counsel to the President’s National Commission on Fiscal Responsibility and Reform, and was instrumental in formulating the tax proposals that were contained in the Commission’s report, entitled the Moment of Truth. Additionally, Joshua served as the Acting Tax Legislative Counsel at the Treasury. Joshua is a frequent speaker at IFA, TEI, ABA Tax Section, NY State Bar Tax Section, Practicing Law Institute and Federal Bar Association tax meetings and conferences.