Pfizer, Chiquita and Medtronic Try to Merge with Foreign Firms to Avoid U.S. Taxes

Tuesday, June 17, 2014
(graphic: Steve Straehley, AllGov)

One major U.S. company has merged with a foreign business and another attempted to in the hopes of legally avoiding some U.S. income taxes.

 

Chiquita Brands International, famous for its bananas and other produce, has merged with Fyffes PLC of Ireland. In forming a new enterprise worth $4.6 billion in annual sales, Chiquita will relocate its headquarters to a country with a 12.5% corporate tax rate compared to 35% in the United States. The deal could result in “pre-tax synergies of at least $40 million by 2016,” according to The Street.

 

In another “inversion” deal, pharmaceutical giant Pfizer tried to move its holding company to England as part of its $106 billion takeover of British rival AstraZeneca.

The shift would have meant a lower tax rate for the U.S. drug maker, which has $57 billion in cash stashed overseas on which no U.S. tax has been paid.  In fact, “the deal, if consummated, would most likely deprive the United States government of billions of dollars in revenue over the next decade,” Andrew Ross Sorkin reported for The New York Times.

 

However, the proposed merger went south late last month when AstraZeneca turned down the U.S. company’s offer of 55 pounds (or about $93) a share.

 

Meanwhile, Medtronic, the Minneapolis-based maker of medical devices, is trying to reincorporate in Ireland by buying its rival, Covidien.

 

Such inversions, or expatriations, started happening in the late 1990s. Since then, Congress has passed legislation making it more difficult for companies to move to other countries to avoid paying U.S. taxes. In response to these latest attempts, Sen. Carl Levin (D-Michigan) has said he will introduce legislation to again tighten the rules pertaining to such deals. Under his plan, and a similar one being introduced in the House by his brother, Rep. Sander Levin (D-Michigan), the inversion would not be recognized if U.S. stockholders have 50% of the shares or if 25% of the business activity is in the United States.

-Noel Brinkerhoff, Steve Straehley

 

To Learn More:

Corporate Expatriation, Inversions, and Mergers: Tax Issues (by Donald Maples and Jane Gravelle, Congressional Research Service)

Tough Corporate Tax Outlook Fueling ‘Inversion’ Deals (by Karlee Weinmann, Law 360)

A Deal to Dodge the Tax Man in America (by Andrew Ross Sorkin, New York Times)

What Chiquita Brands Isn't Talking About in Fyffes Merger (by Antoine Gara, The Street)

U.S. Corporations Are Exploiting a Huge Tax Loophole, but the GOP Doesn’t Want to Close It (by Danny Vinik, New Republic)

In Medtronic’s Deal for Covidien, an Emphasis on Tax Savings (by David Gelles, New York Times)

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