US warned of up to 25 groups eyeing foreign switch to cut tax
By Barney Jopson in Washington and Ed Hammond in New YorkAuthor alerts
WASHINGTON, DC - JANUARY 06: U.S. Sen. Ron Wyden (D-OR) speaks to members of the press as he is on his way for a vote January 6, 2014 on Capitol Hill in Washington, DC. Janet Yellen was confirmed by the Senate with a vote of 56 - 26 to become the first woman to head the Federal Reserve Board. (Photo by Alex Wong/Getty Images)©Getty
Up to 25 more US companies are considering relocating overseas to cut their tax bills this year, a top Democratic lawmaker has warned, as he assailed investment bankers for encouraging them.
The prediction came as concern mounts in Washington over a rise in merger deals, known as inversions, which US multinationals use to move their headquarters to countries with lower corporate tax rates.
They were thrust into the spotlight by Pfizer’s unsuccessful $116bn attempt to buy UK rival AstraZeneca. Angst is now rising over Walgreens, a drugstore chain that could use its agreed takeover of Switzerland-based Alliance Boots to redomicile.
Ron Wyden, the chairman of the Senate finance committee, intensified his attacks on inversions on Tuesday. “The inversion virus now seems to be multiplying every few days,” he said. “How many more infections can America’s economic body endure?”
He complained that even as they hurt US employment and shrank the country’s tax base, the deals were being promoted by “fast-buck artists” such as investment bankers, private equity groups, lawyers and accountants.
“With the investment bankers in that inversion feeding frenzy, there may be 25 more inversions during [this year],” he told a hearing of the Senate finance committee.
In inversion deals in the past month, Medtronic announced the $42.9bn acquisition of Dublin-based Covidien and AbbVie agreed to acquire the UK’s Shire for $54bn.
Speaking for the Obama administration, Robert Stack, a senior official at the US Treasury department, told the hearing: “We are aware of many more inversions in the works right now”.
Companies and their advisers on both sides of the Atlantic remain undaunted by the political onslaught in Washington, calculating that the chances of Congress passing bipartisan legislation to curb inversions are slim.
Last week, Jack Lew, the Treasury secretary, urged lawmakers to pass a White House proposal – backed by Mr Wyden – to stamp out inversions, which would lift the foreign ownership threshold for such deals from 20 per cent to 50 per cent.
Although senior Republicans have also lambasted inversions, the two parties cannot agree on how to tackle the problem.
Senator Orrin Hatch, the top Republican on the finance committee, criticised proposed countermeasures from the White House and others as being mainly “punitive and retroactive”. He said that rather than “incentivising American companies to remain in the US, these bills would build walls around US corporations in order to keep them from inverting.”
He added that they could have the unintended consequence of encouraging “reverse acquisition” inversions by making US companies more attractive targets for foreign suitors.
Chris Krueger, an independent analyst at Guggenheim Securities, said the probability of Congress taking action on inversions this year was less than 10 per cent.
Lawmakers will go on a five-week recess next week and when they return minds will be focused on November elections.
In a statement echoed by many Republicans, the Business Roundtable, which represents blue-chip companies, said last week that inversions were symptoms of the broader failures of a US tax system that hampers US competitiveness.
It said “piecemeal” bills to curb the deals were not the answer and repeated its longstanding calls for comprehensive tax reform.
Mr Wyden said he had invited the chief executives of several companies doing inversions to testify, but they had not accepted.