Tax-driven mergers: Inverse logic

AMERICA is a land of immigrants, but some of its biggest companies are keen to emigrate, driven abroad by high tax rates and America’s “worldwide” system of taxation, which grabs a share of their foreign profits. The preferred method of exit is the “tax inversion”, which uses a cross-border merger—generally one that also has some sort of industrial logic—as the pretext for reincorporating in a more tax-friendly place. Medtronic, a maker of medical devices, is the latest and largest firm to change its nationality in this way.The combined group will be domiciled in low-tax Ireland, the official home of its merger partner, Covidien (see article). But Medtronic’s executives will stay in Minneapolis and Covidien’s will remain in Mansfield, Massachusetts. Covidien, then part of Tyco, left America for Bermuda in 1997 before moving to the Emerald Isle in 2009. The deal thus involves an inversion with a “foreign” firm that has itself already inverted: a sort of “inversion squared”.This will be the 15th transaction of the…

Link to article: www.economist.com/news/business/21604555-rush-firms-fleeing-america-tax-reasons-set-continue-inverse-logic?fsrc=rss|bus

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