Dodger Corp. has been in the manufacturing business in the U.S. for more than 10

Question

Dodger Corp. has been in the manufacturing business in the U.S. for more than 100 years. A tax consultant has proposed that Dodger use a "corporate inversion" to nominally move its headquarters to an island in the Atlantic Ocean. TYhe operating headquarters will remain in the U.S along with all of its employees, its plant and equipment, and most of its customers. By undertaking this corporate inversion and technically moving its headquarters offshore, Dodger can defer or avoid paying U.S. corporate income tax. For all practical purposes,however, it remains a U.S.-based company. 1. What would you recommend dodger do about the proposed corporate inversion? 2. What potential ethics issues do you see in this situation?

Explanation / Answer

Issues

The specific issues include the ability of the corporate inversions to help the company avoid increased U.S taxes on future foreign profits. However, the transactions could be faced by new tax restrictions relating to inversions. Another specific issue is the nature and amount of unexpected financial consequences from the inversions pursued by the company (Mankiw, 2014). For instance, the inversions have been used a way of increased the value of the shareholders due to the reduced tax burden. This indicates some of the specific issues of concerns in the case of Dodger Corporation.

Conclusions

In summary, it is clear that the corporate inversions offer the U.S companies operating in worldwide basis some tax advantages. The inversions are also welcomed for short-term deals that would reduce the taxation of the businesses. In addition, the corporate inversions have been seen to reduce the inversion tax that offsets capital gains with capital losses from the sales of assets. Most importantly, it is recommendable for the company to go ahead with the corporate inversions, as it would reduce the overall taxes to be paid. Corporate inversions violate the ethics through reducing their share of social responsibility. Since, the reduction of the corporate taxes reduces the overall government revenues.

Support

The federal tax code have helped in providing a comprehensive tax reform that helped to shift the U.S government from taxing companies operating on the worldwide income. However, Congress has announced some new restrictions that could make it difficult to complete the corporate inversions as well as making them less profitable (Harvey, 2014). Apart from the federal tax code, the IRS regulations also support the implementation of the corporate inversions among firms operating globally.

Actions to be taken

Other actions that should be taken by Dodger Corporation include funding community initiatives in order to compensate for the reduction in corporate taxes. Since, it is their ethical obligation and social responsibility to improve the economic growth. Secondly, the Dodger should adhere to the regulations and requirements of completing the corporate inversions. This makes it possible to account for the actual tax requirements needed.

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