Tax Inversion

There are two key ways in which tax inversion is effected –

  • Intra-company debt: This is also called earnings-stripping
  • Transfer pricing: The company says that a significant value of the product is derived from activities outside the U.S. Often times it’s thought that IP is the key way this is executed but this can be shown by showing that decisions on manufacturing, supply chain, R&D etc are being made outside the U.S.

Often times, IP is not the best way to execute transfer pricing because when IP is being transferred, and presumably the IP is valuable, the IP is “marked-to-market”, so to say, based on the current revenue stream (almost like re-valuing the goodwill at the time of the acquisition), and then the company has to pay an exit fee based on this higher $ amount.

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