Tags: Financial | Times | Tax | Inversions

Financial Times: Tax Inversions Aren't Going Away

By    |   Sunday, 19 October 2014 08:00 PM

Deals in which corporations flee high U.S. corporate taxes for foreign shores may not be dead, despite the Obama administration’s efforts to stamp them out.

The Financial Times reported its legal and tax expert sources said the so-called tax inversion strategies are simply moving into another phase.

Some companies are abandoning their efforts, such as AbbVie did last week when it abandoned a $54 billion takeover of rival drug maker Shire in Europe.

“Others are restructuring their financing to keep them alive, and some are proceeding unimpeded,” the Times said.

One unidentified White House official said the Treasury Department’s effort to slash the tax
benefits of inversions has had some impact. “But it doesn’t change the basic fact that you can
buy a company much smaller than yourselves overseas and change your tax address to the
address of that company, while still essentially not changing anything else,” the official said.

The U.S. has the highest corporate tax rate in the developed world, at about 35 percent, while some European nations and Canada have rates that can be about half as much.

The Financial Times said the new Obama administration clamp-down makes it harder for inverted companies to access earnings held outside the U.S. without paying American taxes on them.

Evidence that the inversion strategy is still afloat came last week when Steris Corp., a medical equipment maker, launched a $1.9 billion cash-and-share takeover of the UK’s Synergy Healthcare. It was the first deal of this type since the White House’s move.

The FT said some U.S. companies are exploring alternative means to access their offshore cash.

One scheme would be to sell themselves to a large foreign rival, which the Times said is a possibility for Chiquita Brands, a US banana company, whose planned $1.3 billion merger with Dublin-based Fyffes is being challenged by a rival offer from Brazil’s Cutrale and Safra families.

Tax lawyers said one consequence of the White House crackdown is that Chiquita’s offshore
cash has become cheaper to access through an acquisition by a foreign rival than if the US
company did an inversion.

One hedge fund investor told the Times that if the US totally prohibits inversions, it will give non-US companies, which enjoy much lower corporate taxes, a permanent advantage over their US rivals.

Bloomberg reported there are eight U.S. companies — with more than $200 billion in market value — that are still working to complete inversions. Some 45 companies already have completed such reorganizations since 1982. The U.K. is a common destination for new tax domiciles sought by American companies.

Forbes reported last week that although Ireland closed its so-called “Double Irish”
tax loophole that was allowing companies with intellectual property revenue to shield it from
governments, Ireland is maintaining its 12.5 percent corporate tax rate, which surely will remain attractive to some foreign entities.

“What the data tells us is that tax inversions are really being driven by the underlying trend of globalization, and that the tax benefits — while impossible to ignore — are not typically large enough to become the primary driver of a decision to relocate a corporate headquarters,” Forbes concluded.

“But, by keeping its 12.5% corporate tax rate intact, Ireland has also signaled that it is serious about its global position as a corporate tax-friendly regime.”

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Deals in which corporations flee high U.S. corporate taxes for foreign shores may not be dead, despite the Obama administration's efforts to stamp them out.
Financial, Times, Tax, Inversions
Sunday, 19 October 2014 08:00 PM
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