What is Corporate Inversion?

Corporate inversion is practice by U.S.-based companies of exchanging their registration with a subsidiary outside the U.S. in order to pay lower taxes.

How Does Corporate Inversion Work?

Many large companies in the U.S. have smaller subsidiary companies located outside of the country. Called 'offshore subsidiaries,' these smaller companies are registered and taxable in the country in which they are located. Since the tax burden for some wholly-owned foreign companies can be significantly lower under these circumstances, the U.S.-based parent company may engage in corporate inversion, swapping registrations with its offshore subsidiary so it is taxed at a lower rate.

For example, if U.S.-based Company XYZ owns Subsidiary ABC, located in the Caribbean, and ABC is taxed at a lower rate, XYZ may use corporate inversion to switch its U.S. registration with the Caribbean subsidiary in order to lower its overall tax burden.

Why Does Corporate Inversion Matter?

Corporate inversion, while a legitimate tax strategy, has serious implications for the revenue collected by the Internal Revenue Service (IRS). With the growing popularity of corporate inversion in recent years, the IRS has made an effort to impose penalties and other deterrents upon companies that engage in this practice.

Ask an Expert about Corporate Inversion

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Corporate Inversion.

Be the first to ask a question

If you have a question about Corporate Inversion, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

Verified Content You Can Trust
verified   Certified Expertsverified   5,000+ Research Pagesverified   5+ Million Users