Coverage: Moving to avoid U.S. taxes

Ever since there have been taxes, people have been moving to avoid them. And while companies have been doing the same, it seems that more U.S. corporations are considering relocating.

Bernie Becker reported for The Hill that the moves have increased since 2008:

U.S. corporations increasingly have sought to move their legal addresses abroad in recent years, with 42 moving offshore since 2008, according to new data released by a top House Democrat.

In all, 75 corporations have moved to a foreign country over the last two decades, according to numbers from the Congressional Research Service released by Rep. Sandy Levin (D-Mich.). That tactic, known as inversion, can allow companies to drastically slash their tax bills.

According to the data, one corporation moved abroad in 1983 — with the next U.S. inversion not occurring until 1994.

Congressional Democrats have stepped up their efforts to battle inversions in recent months, spurred on by the drug giant Pfizer’s ultimately unsuccessful attempt to merge with AstraZeneca, a British pharmaceutical company.

Writing for Reuters (via The Chicago Tribune) Kevin Drawbaugh pointed out some of the companies that are either doing deals with overseas companies or moving to lower their taxes:

Medical technology group Medtronic Inc said last month that it plans to buy Covidien Plc, a rival based in low-tax Ireland. Analysts said the deal was driven, at least in part, by tax considerations.

The research service said other inversions have been done in the past decade by Mallinckrodt Pharmaceuticals, Perrigo Co Plc, Actavis Plc and other companies, many of them rebasing for tax purposes to Ireland.

Even The New York Times columnist Andrew Ross Sorkin weighed in on the matter in a recent column:

A little less than two years ago, Gregory D. Wasson, the chief executive of Walgreen, sought a series of tax breaks from Illinois, where his company is based.

“We are proud of our Illinois heritage,” he said at the time. “Just as our stores and pharmacies are health and daily living anchors for the communities we serve, we as a company are now recommitted to serving as an economic anchor for northeastern Illinois.”

The state gave Walgreen $46 million in corporate income tax credits over 10 years in exchange for a pledge to create 500 jobs and invest in upgrading its offices. The state also provided $625,000 in training money and $875,000 in other tax incentives.

Mr. Wasson’s actions, however, could soon run counter to his words. The same chief executive who said he was so “proud of our Illinois heritage” is now considering moving the company’s headquarters to Switzerland as part of a merger with Alliance Boots, a European drugstore chain.

Why? To lower Walgreen’s tax bill even further.

Alarmingly, dozens of large United States companies are contemplating the increasingly popular tax-skirting tactic known as an inversion. Under the strategy, companies merge with foreign rivals in countries with lower tax rates and then reincorporate there while still enjoying the benefits of doing a large part of their business in the United States. AbbVie, a drug company spun off from Abbott Laboratories, is in talks to merge with its rival Shire, based in Ireland, Europe’s equivalent of a tax haven. Medtronic announced plans to merge with Covidien, also based in Ireland. Similarly, Pfizer sought to buy AstraZeneca, based in Britain, where the tax rate is lower than it is in the United States, but AstraZeneca’s board rejected that offer.

CBS Moneywatch reported in a story by Kim Peterson that some companies may also be after cash held offshore:

Another consideration for companies like Pfizer is that shifting an address overseas could give them access to all the cash they hold offshore. U.S. companies have about $2 trillion sitting in overseas bank accounts, and would have to pay income taxes on that money if they wanted to bring it back home. Congress has deadlocked for years on how to handle the issue.

Drugstore chain Walgreen (WAG) is getting pressure from some shareholders to move its corporate address to Switzerland. But analysts think the company will stay in the U.S. because moving would be difficult for the company and create operating inefficiencies, Businessweek reports.

U.S. lawmakers aren’t happy with the increasing number of tax inversions. Last month, 14 senators introduced a bill that would freeze all inversions for two years. The plan is to use that delay to figure out how to improve the corporate tax code, The New York Times reports.

The senators can’t exactly stop a company from moving, but they can change that requirement that 20 percent of stock be owned by foreign shareholders before an inversion occurs. They want to raise that threshold to 50 percent for two years, which would effectively clamp down on inversions.

But what does this really mean if companies are only moving their address and not their operations? Jobs aren’t likely to be lost and investors could see benefits from better earnings and more profits at large companies. The downside is likely to be felt by those least expected. As the federal government’s income shrinks, it’s the preschool programs or the free lunches, or maybe the subsidized elderly care that will be cut. It’s unlikely that average Americans can take on this burden.