Is Grant’s ‘The Aftermath of a King Renouncing His Citizenship’ History Repeating Itself?

By: Elizabeth Hirschman, Journal Staff Member

Growing up in the age of globalization has allowed me to see doors opening for many domestic companies to compete abroad.  I remember the implementation of the North American Free Trade Agreement (NAFTA) and all the hype that was associated with its initiation.  I remember President Clinton declaring all the “benefits the American people would receive.” However, it wasn’t long until I heard just the opposite, local outcry was abundant in my neighborhood as my friend’s parents were laid-off as several auto industry jobs were shipped to foreign countries. Abroad, foreign workers were willing to work for pennies on the dollar creating an exponential upside for corporations. The devastation left behind as the companies packed up and fled the country is evident today in cities such as Flint and Detroit Michigan. At least that is what they told us—that corporations were making money and left the American citizens behind–unemployed.  Then, 20 years after the government’s application of NAFTA, in 2014, the government spent $11.2 billion dollars to bail General Motors out of bankruptcy.[1] It’s hard to see who really benefitted here, the American people or the corporations.

In this scenario there are too many variables to conclude the actual demise of General Motors.  Whether it was the sudden influx of foreign manufactured vehicles entering the American market, subpar parts being manufactured abroad, or poor business decisions—but it begs the question, is it really worth a corporation’s effort to move abroad just to avoid taxation? Taking a corporation abroad risks a corporation’s ability to bring US civil suits, or to enforce judgments they obtain. Moreover, subject matter jurisdiction becomes difficult to obtain in US courts when the corporation is viewed as an alien.[2]

Grant draws a distinction between the above hypotheticals and the current issue—that companies have an opportunity to save billions by “using a strategy known as a “corporate inversion” or by “expatriating” to reduce their tax liabilities.”[3] The Grant article demonstrates this both by Burger King’s move to the United States’ northern neighbor, Canada, and by the massive tax liability knocking on McDonald’s foreign subsidiaries.[4]  As demonstrated in Grant, Stanley’s mere interest to move their corporate headquarters abroad increased stock price, but when they decided to stay a domestic company their stock plummeted to an all-time low.  Who is being patriotic then? Those looking to make money for their US investor’s or those looking to keep their company “American?” The US government faced with the issue of corporate inversion appears to be avoiding the issue all together and instead of asking how domestic companies can compete abroad with the current US taxation rate; they are spending resources closing up loop holes and making it punitive to take a corporate head quarter’s abroad. 

Making the move abroad harder for corporations is just going to cause exodus sooner, if there is money to be saved everyone will jump on the bandwagon. It is not my personal belief that US corporations should be taxed at a lower rate; however, I also don’t believe that a corporation’s board can be both patriotic and fulfill their fiduciary duties to shareholders.

[1] Eric Beech, U.S. Government Says it Lost $11.2 Billion on GM Bailout, (April 30, 2014), article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430#zmtvu0hTczAtToEE.97. 

[2] House Report 112-10, Section 102, page 8 (2011)

[3] Gerrard Grant, The Aftermath of a King Renouncing His Citizenship,” – Mich. St. J. Bus. & Sec. L. – (2016)

[4] Id.


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