American Companies Joining Foreign Corporations To Save Tax Dollars. Government Tax Planning Extracts Another Unseen Consequence.

American corporations are increasingly turning to a new tactic for avoiding high U.S. corporate taxes: merging with foreign companies and then reincorporating abroad where taxes are lower.

In one recent case, California chip maker Applied Materials merged with a smaller Japanese rival and will reincorporate in the Netherlands. The move will reportedly save the firm about $100 million a year in taxes.

In July, the American advertising firm Omnicom announced plans to merge with France's Publicis Groupe and establish the combined company's headquarters in the Netherlands, which has a 25 percent statutory corporate tax rate versus 35 percent in the United States.

Omnicom's CEO John Wren confirmed that the Netherlands was chosen for tax purposes, CNBC reported.

Also in July, Michigan-based pharmaceuticals maker Perrigo agreed to buy the Irish drug company Elan for $6.7 billion and set up residence in Ireland, which has a corporate tax rate of 12.5 percent.

"From New York to Silicon Valley, more and more large American corporations are reducing their tax bill by buying a foreign company and effectively renouncing their United States citizenship," according to The New York Times.

Ian Shane, a tax lawyer at Golenbock Eiseman Assor Bell & Peskoe, told CNBC: "Without tax reform in the United States, I think you will see more of these types of deals."

Reincorporation in tax havens such as Bermuda and the Cayman Islands, known as "inversion," has been going on for decades. But regulations have made the process more difficult over the years.

The Jobs Creation Act of 2004 required that in order to invert, companies needed to have substantial business activity in the country where they reincorporate.

And the Internal Revenue Service stated that "substantial business activity" means in most cases that a firm must have 25 percent of assets, income, and employees in the target country.

"After these successive rounds of legislation and rule tightening, the only effective way for an American company to invert is by increasing foreign ownership of its stock to more than 20 percent," The Times observed. "And the only feasible way to do that is by reincorporating abroad as part of a merger or acquisition."

Companies are frequently choosing low-tax European nations to avoid the scrutiny that might come by moving to an offshore tax haven such as Bermuda.

"Countries in Europe and elsewhere are competing with each other with lower tax rates to bring in firms and have them headquartered there," Shane said.

"Just look at the Netherlands. Firms headquartered there don't have to face rigid tax rules. They can apply for a ruling on the amount they want to pay and get it approved or not, just as long as they pay some taxes."

The average corporate tax rate in Europe is about 20.6 percent, and worldwide it is 20 percent. During the 2012 presidential campaign, Republican Mitt Romney called for lowering the U.S. rate to 25 percent