US Treasury Cracks Down On Tax Inversions

One of the key drivers of the recent spike in M&A deals (and sellside advisory fees) has been the surge in tax inversion transactions, deals in which a U. S. company reincorporates for tax purposes in a tax-friendlier country such as the U. K. or Ireland, while maintaining its real headquarters in the U. S. Traditionally such deals have involved a merger between a U. S. firm and a smaller foreign firm. The reason for such deals is simple: to lower the corporate tax payments by avoiding the venue of the one country with the highest corporate tax rate in the world: USA, and leave more cash available for distribution to private shareholders. And since every such deal lowers the cumulative tax that the US collects from corporations, Obama, helpless to change the legislation that ushered in these deals in the first place, came out a few months ago, with a heartfelt appeal to corporate patriotism, calling inversions “wrong”, and demanding “corporate patriotism.” He failed. Which is why moments ago the Treasury released its new rules meant to “Reduce Tax Benefits of Corporate Inversions.”
Per the US Treasury: “Today, Treasury is taking action to reduce the tax benefits of – and when possible, stop – corporate tax inversions. This action will significantly diminish the ability of inverted companies to escape U. S. taxation. For some companies considering mergers, today’s action will mean that inversions no longer make economic sense.“
As the WSJ explains, in a multipronged attack, the administration took action under five separate sections of the tax code to make so-called inversions harder to accomplish and less profitable.

This post was published at Zero Hedge on 09/22/2014.