This week the big medical device company Medtronic said it was moving its legal headquarters from Minneapolis to Ireland. It's part of a $43 billion merger with another medical company, Dublin-based Covidien.
The move is a tax-saving strategy called an inversion and it's growing more common in the corporate world.
U.S. companies make huge amounts of money overseas every year and much of it stays there, stashed away in foreign accounts.
"They have billions and billions of dollars offshore and they're generating billions and billions more each year," says Martin Sullivan, chief economist at the nonprofit firm Tax Analysts.
He says the problem is a quirk in the tax code. American companies can make all the money they want overseas, but once they bring the money back home they have to pay U.S. taxes. And the official U.S. corporate tax rate, before deductions and exemptions, is high compared to other industrialized countries.
"We've created this crazy system where instead of taxing profits when they are earned we only tax them when they are brought back home," Sullivan says. "Therefore, there's a tremendous disincentive to bring the money back home."
Much of the money ends up sitting for years in foreign bank accounts, often in tax havens such as the Cayman Islands, says Edward Kleinbard, a law professor at the University of Southern California and author of We Are Better Than This, a book about government spending.
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