Monday, December 22, 2014

"The Greatest Tax Story Ever Told"

From Bloomberg:
The only operetta ever written about Subpart F of the Internal Revenue Code made its debut on a rainy Sunday evening in May 1990, in a Fifth Avenue apartment overlooking Central Park. In bow ties and spring blazers, partners of the law firm of Davis Polk & Wardwell dined on lobster prepared by a Milanese chef. Then everyone gathered around a piano, and a pair of professional opera singers, joined by the few Davis Polk men who could carry a tune, performed what sounded like a collaboration of Gilbert & Sullivan and Ernst & Young.

The 13-minute operetta, Charlie’s Lament, told how the party’s host, John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. The lawyers sang:
The Feds may be screaming,
But we all are beaming
’Cause we’ll never pay taxes,
We’ll never pay taxes,
Never pay taxes again!
The first corporate “inversion,” as Carroll’s maneuver came to be known, was obscure then and is all but forgotten now. Yet at least 45 companies have followed the lead of Carroll’s client, New Orleans-based construction company McDermott International (MDR), and shifted their legal addresses to low-tax foreign nations. Total corporate savings so far: at least $9.8 billion—money that otherwise would have gone to the U.S. government.

This year, inversions have received more attention than ever, as well-known companies such as Burger King (QSR:CN) and Pfizer (PFE) announced plans to change their addresses. (Pfizer didn’t follow through.) In July, President Obama called the practice an “unpatriotic tax loophole” and urged Congress to put a stop to it. In September, the Department of the Treasury tightened regulations to discourage the deals. “My attitude is, I don’t care if it’s legal,” Obama said in July. “It’s wrong.”...MORE
HT: FT Alphaville's First FT column, Dec. 19, 2014.