As millions of Americans get ready to ante up and pay what they owe to Uncle Sam, Chase Bank has made hundreds of millions of dollars helping some of the largest companies in the world dodge their taxes. And they have a creative name for this thievery – tax inversion.
What is corporate tax inversion
In simple terms, A corporate tax inversion is a transaction in which a U.S. based multinational company restructures so that the U.S. parent company is replaced by a foreign parent, in order to avoid U.S. taxes, according to the U.S. Treasury Department.
However, like a lot of the schemes cooked up by the financial wizards at Wall Street institutions like JP Morgan Chase, the details around tax inversion are exceedingly complicated and difficult for the average person to fully wrap their head around. That’s by design. It’s a lot harder to be charged with financial crimes if the prosecutors aren’t smart enough to figure out what you’re doing.
But in the case of corporate tax inversion, the strategy appears to be legal for the time being. And leading the way to help these US Companies avoid paying their share of taxes is none other than JPMorgan Chase.
In the years from 2011 to 2014, JPMorgan made almost $200 million in fees helping companies essentially rob US Taxpayers. Legally, of course. Not that it would really matter – we’ve seen Chase Bank pay billions (literally) in fines over the last several years, and not bat an eye. Jamie Dimon has made it clear that paying fines for breaking the law is an acceptable cost of doing business for Chase.
How corporate tax inversion works
Like any other tax avoidance scheme, the details are complicated. According to the Congressional Budget Office, it originated with the intent of helping U.S. corporations compete on a global scale. But as often happens, well meaning government intervention ends up doing more harm than good.
U.S. companies pay a 35% tax rate on income earned here in the U.S., as well as anywhere else in the world. However, most of the rest of the developed world uses a territorial tax system where the tax rate is based on what country the income is earned in. Since many countries have tax rates far lower than 35%, there is a financial incentive to move out of the U.S.
To accomplish this, companies that are based in the U.S. will “merge” with a company that is headquartered in the desired country, and the new company will simply move headquarters out of the U.S. in order to take advantage of the lower taxes.
The usual desired locations include Bermuda, Cayman Islands, and most notably – Ireland. In Ireland, companies are able to take advantage of an even sweeter scheme known as the Double Irish Arrangement, which is beyond the scope of this article, but another source of ill-gotten gains for Chase.
So how have banks like JPMorgan Chase fared under the Obama Administration? Quite well, actually. Although with the lack of interest that Eric Holder and the Justice Department have shown in prosecuting the likes of JPMorgan since Obama has taken office, this should come as no surprise.
To be fair, Obama has been owned by the Big Banks since his first election in 2008. He received far more contributions from the Finance industry than all of his competitors on the right, and on the left. When you’re the number one recipient of funds from the banking lobby, you’re gonna be expected to look the other way.
Chase CEO Jamie Dimon, who is a long time buddy of President Obama, has commented on these tax schemes.
“We have a flawed corporate tax code that is driving U.S. companies overseas.” He then added that a moratorium on these types of deals would have no effect. “Even if you stop and say, ‘Don’t invert,’ capital will move away.” And then in the ultimate act of defiance, Mr. Dimon went on to say, “I’m just as patriotic as anyone.”
Why this matters
So while Mr. Dimon is assuring the American people of his patriotism, his bank is making hundreds of millions of dollars helping companies deprive the U.S. Government of as much federal tax revenue as they can get away with. Ironic, since banks like Chase were the main beneficiaries of Billions of dollars in taxpayer funded bailouts after the economic collapse in 2008.