Lately, the media has focused on tax inversionsmost recently when Burger King announced that it will purchase Tim Hortons, a Canadian company, but what are they? (
A tax inversion is a transaction whereby a U.S. corporation buys the stock of a foreign corporation domiciled in a tax-friendly jurisdiction such as Ireland or the U.K. The transaction is designed to cause the foreign corporation, or a newly formed foreign corporation, to own the parent company. Additionally, the shareholders of the U.S. company end up owning a majority of the stock of the new foreign parent company. 

These transactions are driven by the desire of the U.S. parent company to avoid paying the applicable U.S. tax when the company repatriates its low taxed earnings from its foreign subsidiaries. The U.S. tax often ends up being avoided by post transaction planning and restructuring.