Corporate Inversion: A Symbol of a Changing Paradigm of Corporate Behavior? Balancing Global Competitiveness, Fiduciary Duty, and Ethical Behavior

Abstract

Global competitiveness is affecting U.S. companies in a variety of ways. one is tax policy. U.S. federal tax policy in a global environment causes many U.S.-based companies to operate at a disadvantage to some foreign competitors. Current U.S. tax laws require domestic residents to pay income taxes on worldwide income. However, many countries have tax systems that exempt from domestic taxation profits earned by foreign subsidiaries. In addition, U.S. corporations with foreign-source income may be subject to tax by the country in which the income is earned. In an effort to eliminate this competitive burden, a growing number of U.S.-based companies have engaged in corporate inversion transactions. U.S.-based companies need to reconcile their fiduciary duty to shareholders with fundamental ethical issues as well as federal tax policy in justifying moving to another country solely for its beneficial tax system.