Escaping Taxes and Maybe Even Death

OK, maybe people can’t do it, but corporations certainly can. I’ve already blogged about how big companies – like General Electric and Apple – have ways of keeping piles of money overseas in low tax havens to be deployed overseas to avoid the IRS. We’ve discussed subsidies, strange deductions, how shareholders can benefit if they are rich enough, etc. But today, we are going to look at how companies can effectively renounce their “citizenship,” and become off-shore companies that have given up their U.S. headquarters.

If you or I try to do that, the IRS will follow you for the next ten years, taxing what you earn wherever you earn it… if they can figure out how to collect it. You (an individual) sure can’t evade these taxes that way and expect to visit the U.S…. ever again. But for companies, the task is somewhat easier. It involves merging with a foreign corporation, almost without regard to size and either taking that company’s country of origin… or… even better… finding a new country that can become the nominal headquarters that just happens to have a really favorable corporate tax rate (or even no corporate tax other than some routine filing and maintenance fees).

“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… ‘It’s almost like the holy grail,’ said Andrew M. Short, a partner in the tax department of Paul Hastings, which advises a number of American corporations on deals. ‘We spend all of our time working for multinationals, thinking about how we’re going to expand their business internationally and keep the taxation of those activities offshore,’ he added.

“Reincorporating in low-tax havens like Bermuda, the Cayman Islands or Ireland — known as ‘inversions’ — has been going on for decades. But as regulation has made the process more onerous over the years, companies can no longer simply open a new office abroad or move to a country where they already do substantial business.

“Instead, most inversions today are achieved through multibillion-dollar cross-border mergers and acquisitions. Robert Willens, a corporate tax adviser, estimates there have been about 50 inversions over all. Of those, 20 occurred in the last year and a half, and most of those were done through mergers.

“When Applied Materials announced its deal for Tokyo Electron, it said that its effective tax rate would drop to 17 percent from 22 percent as a result. For a company that had nearly $2 billion in profit in 2011, that amounts to savings of about $100 million a year… Last year, the Eaton Corporation, a power management company from Cleveland, acquired Cooper Industries, based in Ireland, for $13 billion, and reincorporated there. The company expects to save $160 million a year as a result of the move.

“In July, Omnicom, the large New York advertising group, agreed to merge with Publicis Groupe, its French rival, in a $35 billion deal. The new company will be based in the Netherlands, resulting in savings of about $80 million a year… Also in July, Perrigo, a pharmaceutical company from Allegan, Mich., said it would acquire Elan, an Irish drug company, for $6.7 billion. Perrigo will also reincorporate in Ireland, bringing its effective tax rate to 17 percent from 30 percent, and saving the company an estimated $150 million a year, much of it in taxes.

“Ireland’s 12.5 percent corporate tax rate is a big draw for some companies. Earlier in the year, Actavis, based in Parsippany, N.J., bought Warner Chilcott, a drug maker with headquarters in Dublin, and said it would reincorporate in Ireland, leading to an estimated $150 million in savings over two years.” New York Times, October 8^th. And if you are big enough, Ireland might just offer you a better deal! They really can. Whoever said that size doesn’t matter clearly didn’t know what they were talking about. Hey, stupid Congress, instead of gridlocking, how about looking over here?! There another kind of Bermuda triangle where only taxes get lost.

I’m Peter Dekom, and just when you think your government doesn’t represent you, it really doesn’t!