US Economy
US Treasury exploring fix to stop companies exiting US via tax inversions
By Michael Hennigan, Finfacts founder and editor
Aug 6, 2014 - 8:47 AM

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The US Treasury Department confirmed on Tuesday said that it is exploring ways to provide a partial fix for to stop tax inversions where US companies shift their headquarters overseas in search of lower corporate tax rates.

In a tax inversion, shareholders of the acquired foreign company must receive stock amounting to at least 20% of the post-merger/takeover company.

The Obama Administration is seeking to raise the level of stock that has to be given the foreign entity to 50% (some of the acquired foreign companies were previously US companies) but the US Congress has not acted.

It's usually a fiction that the control of the US company is moved overseas to the new headquarters.

"Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place," the department said in a statement.

Separately, Walgreens, the US drugstore giant, decided not to move its headquarters to Europe but it does plan to buy the 55% of Alliance Boots it doesn't own, according to The Wall Street Journal.

Alliance Boots is headquartered in Switzerland and is owner of the Boots' pharmacy chain.

The Treasury Department said that legislation passed by Congress is "the only way to fully address inversions," but that Treasury was looking "to at least provide a partial fix."

Last month President Barack Obama called the companies “corporate deserters” following Medtronic’s $42.9bn acquisition of Dublin-based Covidien (Irish ex-US) and AbbVie’s agreed takeover of the Shire (Irish ex-UK) for $54bn.

The International Tax Review says that between 1983 and 2004 there were just 29 inversion transactions out of the US. But in the decade following, almost 50 companies have restructured using the method. "With foreign profits trapped offshore by an outdated system which would hit them with a tax on repatriation, a high tax rate and worldwide system of taxing income, the temptation to consider an inversion is proving too much for US companies, particularly those in the highly-mobile pharmaceuticals sector."

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