|Island Boy Paul Ryan|
In this clip Paul Ryan argues against the Bush administration in closing the loopholes that allow American companies to skirt American taxes by setting up off-shore shell companies and doing what is know as a Corporate Tax Inversion. Seen here questioning International Tax Expert Stephen Salch, over and over if closing these loopholes would somehow hurt American private equity markets. Stephen Salch responds by explaining why he is completely off base. He states that corporations can borrow in the US, but it doesn't mean they will use the money here, and it is nothing but a tax dodge that has nothing to do with banking or private equity markets as Ryan tried to imply.
At one time, so-called inversion transactions were quite popular. A U.S. corporation — for example, a company such as Bain Capital would create a new foreign corporation located in a tax haven like the Cayman Islands [See: Where Mitt Romney's Money Lives]. The shareholders of the U.S. corporation would convey their stock to the new foreign corporation in exchange for the latter's stock.
As a result, the U.S. corporation would become a subsidiary of the new foreign corporation. Further, through a series of transactions executed after this relationship was created, the income earned by foreign affiliates of the U.S. corporation could be sheltered from U.S. taxation. Moreover, it was even possible, through the institution of certain intragroup arrangements, to shelter a portion of the domestic income of the U.S. corporation from taxation.