Johnson Controls Tax Inversion Merger With Tyco

One of the anachronistic components of the current United States tax law is the treatment of foreign profits generated by a firm that is domiciled in America. If Coca-Cola, based in Atlanta, generates profit selling Cherry Coke in Brazil, it faces the prospect of a 35% tax on profits when it tries to take those Brazilian Cherry Coke profits back to Atlanta to allocate the freshly available capital. This rule was a product of the Marshall Plan that helped rebuild Europe after the war, as the United States facilitated the ability of its corporations to become multinationals in exchange for a tax bite of those repatriated profits.

As the rest of the world caught up to the United States, and technology advances made it easier for corporations to communicate internationally, the bargaining power between U.S. corporations and its own government shifted. The tax on foreign earnings as part of a … Read the rest of this article!