It was often a single sentence, and near the end of the press release: "As a result of this business combination, the company will be domiciled in city X". The rationale for city X was seldom provided; X was merely the home of the non-US entity in the combination (or some other non-US city, implying a strategic choice). Most press releases delineated an expectation of synergistic cost savings; few were explicit about tax reductions being a significant part of that synergy.

Authorised by the US tax code, the term for this domicile move is inversion. Subject to ownership parameters, this once obscure transaction has become a political lightning rod. In place for about 30 years, an estimated 60 companies have taken this path, but the pace has quickened. Half have occurred in the past six years, and there are several now in the wings. Some suspect there are more being planned, but quietly. Failing to enact business tax reforms that enhance competitiveness, a few politicians instead call into question the 'economic patriotism' of these companies.

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Almost uniquely, the US does not use a territorial tax system; it imposes a tax on repatriated income. Some $1600bn is on the international books of US companies, representing funds earned and taxed abroad. US companies use this to fund expansion elsewhere. For an acquisition in the US, foreign buyers have a comparative advantage. They can use their international earnings to buy US assets; a US company would lose as much as 35% of its international earnings on its way to the table.

After an inversion, this advantage is mitigated. Amazingly, if a US company wants to invest its international earnings in the US, it is better able to do so if it moves itself outside the US first. 

Daniel Malachuk works with business and government leaders on global direct investment strategies. He has advised many of the world's leading companies and served in the US public sector as director of White House operations.

E-mail: daniel.malachuk@gmail.com