Pfizer’s recent, yet so far unsuccessful attempt, to take advantage of lower corporate tax rates in the U.K. by acquiring the drug company AstraZeneca, has provoked a need to update the current tax code. President Obama and other Government officials are seeking changes to the tax code that would make U.S. corporate tax rates globally competitive.

There are many advantages to this corporate inversion, including:

• A corporate inversion allows the company to avoid U.S. tax on foreign operations and on distributions to the foreign parent.
• It presents the opportunity to reduce taxable income from U.S. operations through disbursements of fees, interest, and royalties to the foreign entity.
• Under this method, Pfizer could benefit from the 21% UK corporate tax rate.

Not everyone supports this inversion tactic, however, leading to companion bills under the Stop Corporate Inversions Act of 2014. Due to the strong political reaction against the corporate inversion, there are conflicting methods in reforming the current tax code. Stay tuned for updates.

Read our article: "Pfizer’s failed Takeover Bid Sparks Calls for Tax Code Reform" for a more detailed explanation of the pros and cons of the corporate inversion, and other approaches to tax code reform.