Well, no. Almost certainly not.
Inversions occur for the simple reason that U.S. tax rules are significantly more advantageous to foreign-incorporated businesses than to U.S.-incorporated businesses. But in fact, the tax reform proposals that have been fleshed out on Capitol Hill so far do not eliminate the differential treatment of domestic and foreign corporations. Consider the following:
- Most tax reform proposals, including those offered by House Ways and Means Committee Chair Dave Camp, and former Senate Finance Committee Chair Max Baucus, would impose some type of new minimum tax on low-taxed foreign-source income.
- Territorial systems as a rule do not eliminate U.S. tax on interest, dividends, rents, and royalties earned by foreign affiliates of U.S. multinationals. This taxation prevents U.S. multinationals from stripping profits out of the United States by allowing the U.S. parent to borrow from a related finance subsidiary in a low-tax country.
- Many territorial proposals do not provide complete tax relief for foreign-source income. For example, under the Camp proposal, foreign-source income would still be subject to a 1.25 percent tax when repatriated.
It is likely that any real-world territorial system will include these and perhaps other anti-base-erosion features that retain advantages for foreign corporations over U.S. corporations. So strong incentives to invert will remain even after tax reform.
Don’t just take my word for it. More than a decade ago, professor Reuven Avi-Yonah of the University of Michigan Law School wrote: “Permitting inversions gives inverting U.S. multinationals a significant competitive advantage over foreign multinationals and noninverting U.S. multinationals. . . . Inversions would continue even if the U.S. adopted territoriality” (Tax Notes,June 17, 2002, p. 1793).
Also in 2002, a report by the New York State Bar Association Tax Section stated: "As many have pointed out, most so-called territorial systems do not provide a blanket exemption that is as favorable as the intended tax treatment of the inverted company.”
In 2013 professor John Steines of the New York University School of Law said: "Even if the United States adopted a dividend exemption system, companies might still expatriate" (Tax Notes,Oct. 28, 2013, p. 355). In a follow-up inquiry, Steines elaborated: “There is no obvious reason why the objective to reduce U.S. tax on U.S. income by a corporation that inverts would be muted by a territorial system.”
In a recent e-mail, Willard Taylor an adjunct professor at NYU Law wrote: “Treasury Department data on inverted companies strongly suggest that these corporations are shifting substantially all of their income out of the United States, primarily through interest payments. “A territorial system would not deal with this, nor would a reduction in the corporate tax rate, unless the reduction was to the 12.5 percent level in Ireland. And no one has proposed that.”
The situation is not hopeless. It may be possible to design tax reform that snuffs out inversions. But that brand of reform has only been sketched out on academic blackboards so far. Despite prodigious efforts by the staffs of the taxwriting committees in recent years, the kind of residence-neutral tax reform needed to deter inversions has not surfaced in any introduced bill or proposal on Capitol Hill.