Does the company actually relocate?

Barely. The point of an inversion is that the real operations, the people and the customers, stay put. What changes is the legal parent and its tax address. Critics call it a paper move precisely because so little physical changes.

Why did the 2017 tax cut do more than the earlier rules?

The earlier rules attacked the mechanics, making specific inversions harder to structure. The 2017 cut attacked the motive. Once the US headline rate dropped to 21 per cent and accumulated foreign cash was taxed once and for all, the gap between staying American and inverting narrowed so much that the deals stopped making financial sense for most companies.

Corporate Inversions, Explained

ByLoopholeKiln EditorialPublished17 June 2026

Figures current as of1 January 2026·Corrections

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A corporate inversion is a US company changing its tax nationality without really moving. It merges with a smaller company in a lower-tax country and makes that foreign company the new parent of the group. The US operations carry on exactly as before, but the group's home address, and the tax treatment of its foreign profits, changes. Congress restricted them in 2004, and the 2017 tax cut took away most of the reason to bother.

What it is

A transaction in which a US corporation reincorporates in a lower-tax foreign country, historically Ireland, Canada, the United Kingdom or Switzerland, by merging with a smaller foreign company so that the foreign entity becomes the new parent. After the inversion, the foreign parent is not subject to US tax on its non-US income, while the US operating business continues to pay US tax on its US-source income only.

How it works, step by step

A US corporation finds a smaller target company in a lower-tax country. The target has to be large enough that its original shareholders end up owning a meaningful slice of the merged group, because of a US anti-avoidance rule (explained below).
The two companies merge. The foreign company becomes the new parent of the combined group.
The new parent is now a tax resident of, say, Ireland or the United Kingdom, and pays tax on its non-US income at the local rate rather than the higher US rate.
The US business continues inside a US subsidiary. Only its US-source income stays within the US tax net.
Earnings the group makes outside the United States are no longer caught by US tax, which can sharply cut the group's overall tax rate.
Often, after the inversion, the group adds earnings stripping (covered separately): the new foreign parent lends to the US subsidiary and charges interest, which further reduces the US subsidiary's taxable profit.

The restrictions

Congress did not leave this open. The key rule is section 7874 of the US tax code, enacted in 2004, which looks at how much of the merged group the original US shareholders still own. If they own too much, broadly 80 per cent or more, the "new" foreign parent is simply treated as a US company anyway, defeating the inversion. Between 60 and 80 per cent, other penalties apply. This is why an inverting company needs a foreign partner big enough that its shareholders take at least about 20 per cent of the combined group.

The Obama-era Treasury then issued notices in 2014 and 2015 to curb "serial" inversions and to limit earnings stripping. Finally, the Tax Cuts and Jobs Act of 2017 cut the headline US corporate rate from 35 per cent to 21 per cent and imposed a one-off transition tax on accumulated overseas earnings, at 8 per cent on non-cash assets and 15.5 per cent on cash. With the US rate far lower and the offshore cash already taxed, the incentive to invert largely evaporated.

Who used it

Public-record examples include a major US fast-food group, which inverted to Canada through its 2014 merger with a Canadian coffee-and-doughnut chain, and a large US medical-devices maker, which inverted to Ireland in 2015 through its acquisition of an Ireland-domiciled medical-products company. Several high-profile attempts were blocked: a US pharmaceutical group's proposed inversion to Ireland via an Anglo-Irish drugmaker was abandoned after a 2014 Treasury notice, and another large US pharmaceutical group's attempt to invert to Ireland via an Ireland-domiciled rival in 2016 was killed by Treasury regulations.

One distinction worth keeping straight: that same US pharmaceutical group's earlier 2014 approach to a UK-based drugmaker collapsed for commercial and regulatory reasons, not because of an anti-inversion rule. Only the 2016 deal was specifically defeated by Treasury action.

Is it still open, and when did it close

Substantially limited rather than fully closed. Section 7874 still stands, the 2014 and 2015 Treasury notices still apply, and the 2017 rate cut removed most of the financial logic. Inversions are not illegal, but they are far harder to do and far less rewarding than they were before 2017.

Sources