When asked about legal tax evasion, corporations often blame the high corporate tax rate for prompting their tactics. Though it’s true that the corporate tax rate in the U.S. is the highest in the world at 35%, companies use strategies to avoid paying that. These companies often come under fire for reducing their tax bills in the U.S. substantially by keeping their profits overseas.
When Apple Inc. was lambasted for legally evading taxes, they asserted they were not alone in their tactics. In a competitive market where many large companies are substantially paying less in taxes, likeminded strategists engage in fiscally creative methods to stay competitive. It’s a trend that’s often viewed as harmful to the government, though profitable for companies.
Tax inversions persist because they’re within the letter of the law. The only recourse for the government may be to overhaul the tax code. Regardless of the solution details, it will take time to create a more effective set of tax laws. Until that happens, companies may still be condemned for taking steps to reduce their tax liabilities.