When does an American company stop being American?
This March 24th, 2006, photo shows US Internal Revenue Service (IRS) tax forms.
It's a fairly common practice among big corporations in the U.S. to keep large portions of their business outside of the country in order to avoid paying American taxes. The process of corporate inversion is usually practiced by companies that earn large amounts of foreign income that is already taxed overseas, though critics say this can cost the U.S. substantial tax revenues they would otherwise receive from American companies.
But if a company that still does business in the U.S. moves operations, or even its headquarters, outside of the U.S., is it still an American company?
The Fortune 500 doesn't think so -- companies that move headquarters outside the U.S. get kicked off their list. On the other hand, the S&P 500 does not remove American companies with overseas headquarters. Allen Sloan, Fortune Magazine's senior editor, thinks his publication has it right.
"The Fortune 500 is supposed to be a list of American companies, and if you decide not to be an American company, we kick you out of the list," Sloan says. "These are companies that want to benefit from the United States, they would just rather have their headquarters in a country where the tax rate is lower."
Though, defining a company's "Americanness" by where they keep their headquarters is a little tricky. After all, Apple and General Electric both hold high ranking spots on Fortune's list, but both companies keep profits overseas and avoid American taxes. Sloan's argument is that location makes a lot of difference, even if just in attitude.
"If you take your headquarters out of the United States, you aren't an American company," says Sloan, "We can argue about degrees about a lot of these companies, but at least they're still acting as if they're Americans and they have some responsibility to the country, whereas these other guys who go overseas, well they want all the protections, they just don't want to pay for them."
In the bigger picture, the law usually catches up to companies using overseas holdings to avoid taxes, forcing them to come up with ever more complicated methods of not paying. The question becomes whether or not there is a way to simplify the tax system and stay fair, or are we stuck with a endless cycle that keeps getting more complicated?
"I don't know how to do it, but I know what's going on is not right," Sloan says. "Having a situation where a company does this or that and is not an American company, but wants to keep all the benefits of being an American company, like having a real legal system, having actual markets that function, you ought to pay for it."