As companies have asked themselves that question, inversions have resurged. The strategy factored into one percent of overseas deals in 2011, but that rose to 66 percent this year. This uptick has led the strategy to be called “the hottest trend in mergers,” a label that’s remarkable given that the tactic was called “perhaps the hottest topic in U.S. tax circles” more than a decade ago. The vocal resistance to inversions right now "is similar to that back in 2002," says Jim Seida, a professor at the University of Notre Dame. Even though it’s a perennially hot topic, little has been done to banish it.
The inverted companies haven’t been the only group benefiting from the deals. In fact, many companies invert at the recommendation of investment banks like JPMorgan Chase and Goldman Sachs. Once one company listens to a bank, inversions can become contagious—their competitors often have no choice but to follow suit. Investment banks have made nearly a billion dollars in the last three years by advising companies to invert. (It’s worth noting here that these investment banks, whose actions are reducing the tax base, are the very same ones that were loaned hundreds of billions of dollars from American taxpayers not long ago.)
Inversions, and the revenue losses they bring, have gotten many talking about what can be done, in the short-run and the long-run, to limit them. One fix available to Congress would be further upping the required percentage of foreign ownership. Other possible remedies—including a regulation that would limit the amount of debt a company could hold and then use to get tax deductions—were brought to President Obama’s attention only when a Harvard Law School professor wrote about them in a publication called Tax Notes.
These fixes might temporarily ward off inversions, but their effects are likely to wear off in time. “Even if we get a fix for it, there’ll be a new strategy, new tactics for avoiding taxes,” says Boise. He frames tax law as an ongoing standoff between legislators and the people companies hire to plan around legislation. “This is very cyclical,” he says in reference to 2014’s similarities with 2004. “It’s like playing Whack-a-Mole.”
“I think we should avoid that temptation [to do something now just] because it feels good to do something,” Desai says. According to him, the inversions we’re seeing now are simply the unanticipated effects of the legislation passed in 2004. Increasing the requirements on foreign ownership, then, might be a salve that not only would be temporary, but would also open up problematic possibilities down the line. “You will have made things worse because [then you’ll] have larger foreign acquirers who are going to be more interested in relocating activity away from the U.S.”
“What’s more profitable,” Desai goes on, “is to take a whack at significant reform.” The underlying reason why companies are so eager to relocate is that our tax rates are higher than those of other countries—yes, countries like Bermuda, but also the UK and Japan. If corporate tax rates were lowered here, that would remove what has been the impetus for decades' worth of inversions. Of course, lowering corporate taxes would only be reasonable if that lost revenue could be made up in full elsewhere. Taxing entities like master limited partnerships and real-estate investment trusts, for example, could take care of a lot of this, even though implementing that would be politically difficult.
Since the early 2000s, Stanley has been largely out of the spotlight. The company most recently made news when, back in 2010, it merged with Black & Decker. But there have been stirrings suggesting that the company hasn’t entirely forgotten why it found a relocation so appealing; an industry publication reported last year that Stanley was mulling a merger with Tyco, which is based in Switzerland (an outcome of Tyco's own inversion back in 1997). Maybe there’ll be a short-term fix that would bar Stanley, and others, from such a merger, but until something lasting is done to keep the attention of corporations on the U.S., their eyes will continue drifting overseas.