A tax inversion or corporate tax inversion is a form of
tax avoidance
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdict ...
where a corporation restructures so that the current parent is replaced by a foreign parent, and the original parent company becomes a subsidiary of the foreign parent, thus moving its tax residence to the foreign country. Executives and operational headquarters can stay in the original country. The US definition requires that the original shareholders remain a majority control of the post-inverted company.
![US tax inversions (1983 to 2016)](https://upload.wikimedia.org/wikipedia/commons/9/9d/US_tax_inversions_%281983_to_2016%29.jpg)
The majority of the less than 100 material tax inversions recorded since 1993 have been of US corporations (85 inversions), seeking to pay less to the US corporate tax system. The only other jurisdiction to experience a material outflow of tax inversions was the United Kingdom from 2007 to 2010 (22 inversions); however, UK inversions largely ceased post the reform of the UK corporate tax code from 2009 to 2012.
![US tax inversions (1994 to 2015)](https://upload.wikimedia.org/wikipedia/commons/a/ac/US_tax_inversions_%281994_to_2015%29.jpg)
The first inversion was
McDermott International
McDermott International, Ltd is a global provider of engineering and construction solutions to the energy industry. Operating in over 54 countries, McDermott has more than 40,000 employees, as well as a diversified fleet of specialty marine co ...
in 1983. Reforms by US Congress in 2004 halted "naked inversions", however, the size of individual "merger inversions" grew dramatically; in 2014 alone, they exceeded the cumulative value of all inversions since 1983. New US Treasury rules in 2014–16 blocked several major inversions (e.g. 2016 USD$160 billion
Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
–
Allergan plc
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
inversion, and the 2015 USD$54 billion
AbbVie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
–
Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
inversion), and the
Tax Cuts and Jobs Act of 2017
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
(TCJA) further reduced the taxation incentives of inversions. , there have been no material US inversions post-2017, and notably, two large Irish-based tax inversion targets were acquired in non-tax inversion transactions, where the acquirer remained in their higher-tax jurisdiction:
Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
by Japanese pharma
for US$63 billion (announced in 2018, closed in 2019), and
Allergan plc
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
by U.S. pharma
AbbVie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
for US$64 billion (announced in 2019, expected to close in 2020); in addition,
Broadcom Inc.
Broadcom Inc. is an American designer, developer, manufacturer and global supplier of a wide range of semiconductor and infrastructure software products. Broadcom's product offerings serve the data center, networking, software, broadband, wirel ...
redomesticated to the United States.
the most popular destination in history for US corporate tax inversions is Ireland (with 22 inversions); Ireland was also the most popular destination for UK inversions. The largest completed corporate tax inversion in history was the US$48 billion merger of
Medtronic
Medtronic plc is an American medical device company. The company's operational and executive headquarters are in Minneapolis, Minnesota, and its legal headquarters are in Ireland due to its acquisition of Irish-based Covidien in 2015. While it ...
with
Covidien plc
Covidien was an Irish-headquartered global health care products company and manufacturer of medical devices and supplies. Covidien became an independent publicly traded company after being spun off from Tyco International in 2007. It was purcha ...
in Ireland in 2015 (the vast majority of their merged revenues are still from the US). The largest aborted tax inversion was the US$160 billion merger of
Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
with
Allergan plc
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
in Ireland in 2016. The largest hybrid-
intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
(IP) tax inversion was the US$300 billion acquisition of
Apple Inc.
Apple Inc. is an American multinational technology company headquartered in Cupertino, California, United States. Apple is the largest technology company by revenue (totaling in 2021) and, as of June 2022, is the world's biggest company ...
's IP by Apple Ireland in 2015.
Concept
While the legal steps taken to execute a tax inversion can be complex as the corporations need to avoid both regulatory and
Internal Revenue Service
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory ta ...
(IRS) hurdles in re-locating their tax residence to a lower-tax jurisdiction, simplified examples are available; such as provided in August 2014, by Bloomberg journalist Matt Levine when reporting on the
Burger King
Burger King (BK) is an American-based multinational chain store, chain of hamburger fast food restaurants. Headquartered in Miami-Dade County, Florida, the company was founded in 1953 as Insta-Burger King, a Jacksonville, Florida–based res ...
tax inversion to Canada. Before the 2017 TCJA, U.S. companies paid a corporate tax rate of 35% on all income they earned in both the U.S., and abroad, but they obtained a credit against their U.S. tax liability for the amount of any foreign tax paid. Given that the U.S. tax rate of 35% was one of the highest in the world, the corporate's maximum global tax liability should, therefore, have been 35%. This pre-TCJA U.S. tax system, was referred to as a "worldwide tax system", as opposed to the "territorial tax system" used by almost all other developed countries. Levine explained: "If we're incorporated in the U.S., we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada
ho operate a "territorial tax system" we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands." By changing its headquarters to another country with a territorial tax regime, the corporation typically pays taxes on its earnings in each of those countries at the specific rates of each country. In addition, the corporation executing the tax inversion may find additional tax avoidance strategies, called tools, that can ''shift'' untaxed profits from the higher-tax locations (e.g. the U.S.), to the new lower-tax country to which the corporation has now inverted.
History
The following are notable events in the history of US and non-US corporate tax inversions:
US experience
* 1983. The first officially recognized US corporate tax inversion was of
McDermott International
McDermott International, Ltd is a global provider of engineering and construction solutions to the energy industry. Operating in over 54 countries, McDermott has more than 40,000 employees, as well as a diversified fleet of specialty marine co ...
from
Texas
Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
to Panama.
Academics refer to it as a first-generation inversion.
* 1990. The relocation of
Flextronics
Flex Ltd. (previously known as Flextronics International Ltd. or Flextronics) is an American Singaporean-domiciled multinational diversified manufacturing company. It is the third largest global electronics manufacturing services (EMS), origi ...
from
California
California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
to
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
; however it is not considered as a full tax inversion.
* 1994. The second officially recognized US corporate tax inversion was of
Helen of Troy Limited
Helen of Troy Limited is an American publicly traded designer, developer and worldwide marketer of consumer brand-name housewares, health and home, and beauty products under owned and licensed brands. It is the parent corporation of OXO Internat ...
from
Texas
Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
to
Bermuda
)
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.
Academics refer to it as a second-generation inversion.
* 1994.
James R. Hines Jr. publishes the important
Hines–Rice paper, which shows that many US corporations had chosen to ''shift'' profits to tax havens, instead of using tax inversions.
* 1996–2004. The first major wave of US tax inversions mainly to Caribbean
tax haven
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
s such as
Bermuda
)
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, song_type = National song
, song = " Hail to Bermuda"
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and
Cayman Islands
The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
; these inversions were mostly "naked inversions" where the corporate re-domiciled to a tax haven in which they had no existing business, and included:
Ingersoll-Rand
Ingersoll Rand is an American multinational company that provides flow creation and industrial products. The company was formed in February 2020 through the spinoff of the industrial segment of Ingersoll-Randplc (now known as Trane Technologies) ...
,
Accenture
Accenture plc is an Irish-American professional services company based in Dublin, specializing in information technology (IT) services and consulting. A ''Fortune'' Global 500 company, it reported revenues of $61.6 billion in 2022. Accentur ...
,
Seagate,
Cooper
Cooper, Cooper's, Coopers and similar may refer to:
* Cooper (profession), a maker of wooden casks and other staved vessels
Arts and entertainment
* Cooper (producers), alias of Dutch producers Klubbheads
* Cooper (video game character), in ...
, and
Tyco.
Academics refer to them as third-generation inversions.
* 2004. US Congress passes the
American Jobs Creation Act of 2004
The American Jobs Creation Act of 2004 () was a federal tax act that repealed the export tax incentive (ETI), which had been declared illegal by the World Trade Organization several times and sparked retaliatory tariffs by the European Union. It ...
(AJCA) with IRS Section 7874 that requires existing shareholders to own less than 80% of the new entity, and introduces a "substantial business activities" test in the new foreign location; AJCA ends "naked inversions" to Caribbean-type tax havens.
* 2009–2012. Several US inversions from the first wave to the Caribbean-type tax havens relocate to
OECD tax havens, such as Ireland (
Ingersoll-Rand
Ingersoll Rand is an American multinational company that provides flow creation and industrial products. The company was formed in February 2020 through the spinoff of the industrial segment of Ingersoll-Randplc (now known as Trane Technologies) ...
,
Accenture
Accenture plc is an Irish-American professional services company based in Dublin, specializing in information technology (IT) services and consulting. A ''Fortune'' Global 500 company, it reported revenues of $61.6 billion in 2022. Accentur ...
,
Seagate,
Cooper
Cooper, Cooper's, Coopers and similar may refer to:
* Cooper (profession), a maker of wooden casks and other staved vessels
Arts and entertainment
* Cooper (producers), alias of Dutch producers Klubbheads
* Cooper (video game character), in ...
, and
Tyco), and Switzerland (
Weatherford and
Noble
A noble is a member of the nobility.
Noble may also refer to:
Places Antarctica
* Noble Glacier, King George Island
* Noble Nunatak, Marie Byrd Land
* Noble Peak, Wiencke Island
* Noble Rocks, Graham Land
Australia
* Noble Island, Great B ...
), fearing a backlash from a new Democratic administration.
* 2012–2016. The second major wave of US tax inversions use mergers to meet the "substantial business activities" of IRS 7874; Ireland and the UK are main destinations and the size of these inversions are much larger than the first wave (see graphic), and included:
Medtronic
Medtronic plc is an American medical device company. The company's operational and executive headquarters are in Minneapolis, Minnesota, and its legal headquarters are in Ireland due to its acquisition of Irish-based Covidien in 2015. While it ...
,
Liberty Global
Liberty Global plc is a British-Dutch-American multinational telecommunications company with headquarters in London, Amsterdam and Denver. Its respective legal names are Liberty Global Plc, Liberty Global B.V. and Liberty Global, Inc., with ...
,
Eaton Corporation
Eaton Corporation plc is an American-Irish multinational power management company with 2021 sales of $19.63 billion, founded in the United States with global headquarters in Dublin, Ireland, and a secondary administrative center in Beachwood, ...
,
Johnson Controls
Johnson Controls International is an American
Irish-domiciled multinational conglomerate headquartered in Cork, Ireland, that produces fire, HVAC, and security equipment for buildings. As of mid-2019, it employed 105,000 people in around 2,0 ...
, and
Perrigo
Perrigo Company plc is an American Irish–registered manufacturer of private label over-the-counter pharmaceuticals, and while 70% of Perrigo's net sales are from the U.S. healthcare system, Perrigo is legally headquartered in Ireland for tax ...
.
Academics refer to them as fourth-generation inversions.
* 2012. The US Treasury issues T.D. 9592 increasing the "substantial business activities" threshold in the foreign destination from 10% to over 25%.
* 2014. The value of new proposed US tax inversions in 2014 alone (US$319 billion) exceeds the cumulative value of all previous US tax inversions in history.
* 2014. The US Treasury further tightens the regulations around the existing AJCA/TD 9592 thresholds;
AbbVie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
cancels a US$54 billion inversion to Ireland with
Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
.
* 2015.
Medtronic
Medtronic plc is an American medical device company. The company's operational and executive headquarters are in Minneapolis, Minnesota, and its legal headquarters are in Ireland due to its acquisition of Irish-based Covidien in 2015. While it ...
completes the largest tax inversion in history in a US$48 billion merger with
Covidien plc
Covidien was an Irish-headquartered global health care products company and manufacturer of medical devices and supplies. Covidien became an independent publicly traded company after being spun off from Tyco International in 2007. It was purcha ...
in Ireland.
* 2015.
Apple Inc.
Apple Inc. is an American multinational technology company headquartered in Cupertino, California, United States. Apple is the largest technology company by revenue (totaling in 2021) and, as of June 2022, is the world's biggest company ...
completes the largest hybrid IP-inversion in history by moving US$300 billion of IP to Ireland (see
leprechaun economics
Leprechaun economics was a term coined by economist Paul Krugman to describe the 26.3 per cent rise in Irish 2015 GDP, later revised to 34.4 per cent, in a 12 July 2016 publication by the Irish Central Statistics Office (CSO), restating 2015 ...
).
* 2015. Two previous US tax inversions to Ireland,
Actavis plc
Actavis Generics (formerly known as Watson Pharmaceuticals and Actavis plc, prior to the acquisition of Irish-based Allergan Inc) is a global pharmaceutical company focused on acquiring, developing, manufacturing and marketing branded pharmaceuti ...
and
Allergan plc
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
, execute a US$70 billion merger to prepare for a tax inversion with
Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
.
* 2016. The US Treasury tightens, and introduces new regulations around the existing AJCA/T.D. 9592 thresholds which blocks the US$160 billion merger of Pfizer with Allergan plc in Ireland.
* 2017. The US Congressional Budget Office forecasts a 2.5% (or US$12 billion) permanent reduction in annual US corporate tax revenues from inversions.
* 2017. The US Tax Cuts and Jobs Act reforms US tax code and introduces a lower 21% headline tax rate and moves to a hybrid–"territorial tax system".
* 2019.
AbbVie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
announced an agreement to acquire Allergan plc for $US63 billion; however the acquisition would not be structured as a tax inversion, and that the group would be domiciled in the U.S. for tax purposes.
AbbVie announced that post the 2017 TCJA, its effective tax rate was already lower than that of Irish-based Allergan plc at 9%, and that post the acquisition, it would rise to 13%.
UK experience
* 2007–2010. The United Kingdom loses a wave of tax inversions mainly to Ireland including:
Experian plc,
WPP plc
WPP plc is a British multinational communications, advertising, public relations, technology, and commerce holding company headquartered in London, England. It was the world's largest advertising company, as of 2019. WPP plc owns many compan ...
,
United Business Media plc,
Henderson Group plc,
Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
, and
Charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified. It is implicit that the granter retains superiority (or sovereignty), and that the rec ...
.
* 2009–2012. The United Kingdom reforms its corporate tax code introducing a lower 19% corporate tax rate and moves to a full "territorial tax system".
* 2013.
Liberty Global
Liberty Global plc is a British-Dutch-American multinational telecommunications company with headquarters in London, Amsterdam and Denver. Its respective legal names are Liberty Global Plc, Liberty Global B.V. and Liberty Global, Inc., with ...
completes the second largest US tax inversion in history in a US$24 billion merger with
Virgin Media
Virgin Media is a British telecommunications company which provides telephone, Cable television, television and Internet access, internet services in the United Kingdom. Its headquarters are at Green Park in Reading, Berkshire, Reading, Engla ...
in the UK.
* 2015. The UK
HMRC
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reports many UK inversions to Ireland returned (e.g.
WPP plc
WPP plc is a British multinational communications, advertising, public relations, technology, and commerce holding company headquartered in London, England. It was the world's largest advertising company, as of 2019. WPP plc owns many compan ...
,
United Business Media plc,
Henderson Group plc); and that the UK was a major destination for US inversions.
* 2016. The UK becomes the third most popular destination in history for US tax inversions with 11 inversions (Ireland is top with 21 inversions).
Other experience
* 2014. Irish
International Financial Services Centre
The International Financial Services Centre (IFSC) is an area of central Dublin and part of the CBD established in the 1980s as an urban regeneration area and special economic zone (SEZ) on the derelict state-owned former port authority land ...
tax-law firms sometimes list
Pentair
Pentair plc (PNR) is an American water treatment company incorporated in Ireland with tax residency in UK, with its main U.S. office in Golden Valley, Minnesota. Pentair was founded in the US, with 65% of company's revenue coming from the US a ...
in their brochures as a Swiss tax inversion to Ireland; however Pentair was really a 2012 US tax inversion to Switzerland, who then used Ireland as a base for two years, before moving to the UK in 2016.
* 2018. The Japanese
Takeda Pharmaceutical Company
The is a Japanese multinational pharmaceutical company, with partial American and British roots. It is the largest pharmaceutical company in Asia and one of the top 20 largest pharmaceutical companies in the world by revenue (top 10 followin ...
announced that it was merging with Irish-based
Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
(a previous UK inversion to Ireland in 2008); however, after some initial confusion, Takeda clarified that it was not executing an inversion to Ireland and that its legal headquarters would remain in Japan.
Drivers
Reduced taxes
![OECD 2018 Corporate Tax Rates](https://upload.wikimedia.org/wikipedia/commons/0/0c/OECD_2018_Corporate_Tax_Rates.png)
While corporates who execute inversions downplay taxation in their rationale for the transaction, and instead emphasise strategic rationale,
research is unanimous that tax was the driver for most US tax inversions from 1983 to 2016.
Types of tax saving
US research on US tax inversions breaks down the tax savings into three areas:
![OECD countries with worldwide tax systems](https://upload.wikimedia.org/wikipedia/commons/5/5d/OECD_countries_with_worldwide_tax_systems.png)
* ''Tax on US income''. Before the 2017 TCJA, the US corporate tax rate was one of the highest rates in the developed world at 35%.
The development of that could ''shift'' or ''earnings strip'' US-sourced profits to other jurisdictions without incurring US taxes, created an incentive for US corporates to execute tax inversions to lower tax jurisdictions.
The "first wave" of US inversions from 1996 to 2004 focused on debt-based tools, however, the significantly larger "second wave" of US inversions from 2012 to 2016 also made use of IP-based BEPS tools.
* ''Tax on non-US income''. Before the 2017 TCJA, the US corporate tax code applied the 35% rate of taxation to all worldwide corporate profits.
The US was one of only eight jurisdictions using a "worldwide tax system".
All other jurisdictions used a "territorial tax system" where very low rates of taxation are applied to foreign-sourced profits (e.g. in Germany was at 5%).
US tax academics noted this was the reason why non-US corporations made limited use of tax havens;
in contrast, US corporations have been shown to be
the largest global users of tax havens.
* ''Tax on offshore reserves''. Tax academics have shown that the dominance of US corporations in using tax havens was driven by strategies to shield non-US income from US taxation.
BEPS tools such as the "
Double Irish
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
",
enabled US corporations to build up untaxed offshore cash reserves estimated at US$1–2 trillion in 2017.
Ensuring that such reserves would be protected from any initiatives by Congress to subject them to US taxes required an inversion to another jurisdiction.
Medtronic's US$20 billion in untaxed offshore reserves was noted as a driver for their 2015 inversion.
In 2015, the UK
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identified high corporate taxes and a "worldwide tax system" for the wave of UK tax inversions to Ireland in 2007–2010.
Evidence of tax savings
In September 2017, the US Congressional Budget Office analyzed the post-tax outcomes of US corporate tax inversions from 1994 to 2014, and found the following:
* After year one, the aggregate effective rate of worldwide taxation of the inverted company fell from a 29% rate to an 18% rate; and
* By year three, the aggregate worldwide tax expense was 34% lower, while the US tax expense was 64% lower.
A 2014 report by the ''
Financial Times
The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Nik ...
'' on US pharmaceutical tax inversions during 2012–2014, showed their aggregate worldwide tax rates dropped from 26 to 28% to 16–21%.
A similar 2014 study by ''
Forbes Magazine
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also repo ...
'' using the projected post-inversion tax rates from the inverting corporates also confirmed the same movement in tax rates.
Shareholder impact
A number of studies have shown that the after-tax returns to original company shareholders post-inversion are more mixed, and often poor:
* A 2014 report by
Reuters
Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world.
The agency was estab ...
on 52 completed US tax inversions since 1983 showed that 19 outperformed the S&P500, another 19 underperformed the S&P500, another 10 were bought by rivals, another 3 went bankrupt and the final one returned to the US. Reuters concluded that: "But the analysis makes one thing clear: inversions, on their own, despite largely providing the tax savings that companies seek, are no guarantee of superior returns for investors".
* A 2017 study published in the ''
Journal of Financial Economics
The ''Journal of Financial Economics'' is a peer-reviewed academic journal published by Elsevier, covering the field of finance. It is considered to be one of the premier finance journals. According to the ''Journal Citation Reports'', the journa ...
'', found that while inversions lowered the corporate tax and increased the economic value of the corporate, the after-tax benefits to shareholders were distributed disproportionately. CEOs and short-term shareholders, foreign shareholders, and tax-exempt shareholders benefitted disproportionately from inversions. However, long-term domestic shareholders did not benefit from inversions, since the US tax code requires taxable shareholders to recognize their capital gains at the time of the inversion.
* A 2019 study published in the ''
International Review of Financial Analysis'', found in the short-term, shares of inverting corporates increased in value. In the medium to longer-term, however, they found that the share price tended to decline. The driver was shown to be partly agency costs, and a distinction was drawn between the material gains of the CEO from the inversion and the losses of long-term shareholders. There were concerns on the acquisition premiums paid in inversion mergers, and that inversions tended to be favoured by corporates with poor growth outlooks.
Types
Definition
![Medtronic OHQ Fridley MN 2017](https://upload.wikimedia.org/wikipedia/commons/f/fb/Medtronic_OHQ_Fridley_MN_2017.jpg)
In 2017, the US
Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO) stated that it only considered a transaction to be a tax inversion under the following conditions:
![Medtronic plc Headquarters Ireland](https://upload.wikimedia.org/wikipedia/commons/4/49/Medtronic_plc_Headquarters_Ireland.jpg)
In all definitions, the executive management (e.g. CEO, CFO), and the substantive offices and assets of the company, can remain in the US.
For example, the executives of Medtronic, who executed the largest tax inversion in history by legally moving Medtronic to Ireland in 2015, remained in their main operational headquarters of
Fridley, Minnesota
Fridley is a city in Anoka County, Minnesota, United States. Its population was 29,590 at the 2020 census. Fridley was incorporated in 1949 as a village, and became a city in 1957. It is part of the Minneapolis–Saint Paul metropolitan area as ...
in the US. All of Medtronic's substantive business and management operations still reside in the US.
Sometimes, the 2015 US$70 billion merger of
Allergan plc
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
and
Activis plc
Actavis Generics (formerly known as Watson Pharmaceuticals and Actavis plc, prior to the acquisition of Irish-based Allergan Inc) is a global pharmaceutical company focused on acquiring, developing, manufacturing and marketing branded pharmaceuti ...
, both previous US tax inversions to Ireland, are listed as a tax inversion (and the largest executed inversion in history). However, as both companies were legally Irish companies, their merger was not considered a tax inversion.
Major classes
In 2019, in the "anatomy of an inversion" the US
Congressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a c ...
(CRS) classified US tax inversion into three broad types:
* ''Substantial business presence''. A US corporation creates a new foreign subsidiary, and exchanges each other's equity in proportion to their valuations so that after the exchange, the new entity is a foreign corporation with a US subsidiary. There is no "change of control". This is also called a "naked tax inversion", a "shell inversion", a "self-help inversion",
a "pure inversion", or "redomiciling".
Since the 2004 ACJA, and the 2012–16 Treasury rules, only US corporations with an existing "substantial business presence" in the foreign location that constitutes more than 25% of the post-inversion corporation (called the "expanded affiliate group" (EAG) in the legalisation) can execute a "self-inversion".
This stopped US corporations inverting to smaller tax havens.
* ''US corporation acquired by a larger foreign corporation''. A US corporation merges with a larger foreign corporation. The US shareholders, therefore, own a minority of the merged group and "effective control" moves outside of the US to the shareholders of the foreign corporation.
The CBO does not recognize these transactions as being tax inversions (including where the acquiring corporation is a
private equity
In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a ty ...
fund, or the transaction is from a bankruptcy).
* ''A smaller foreign corporation acquired by a larger US corporation''. A US corporation merges with a smaller foreign corporation who becomes the new legal parent of the group. The existing US shareholders still own a majority merged group this thus maintain "effective control", however, it is now a ''foreign company'' under the US tax code.
The CBO considers these type of transactions as tax inversions (a "merger tax inversion").
Since 2004 ACJA and 2012–16 Treasury rules, only mergers where the existing US shareholders own less than 80% of the EAG are recognized as foreign by the IRS (and mergers where the foreign-headquartered EAG is still over 80% owned by the original US corporate shareholders, is considered by the IRS to be a US corporation for taxation purposes).
Hybrid inversions
![US aggregate corporate tax rates (1990 to 2016)](https://upload.wikimedia.org/wikipedia/commons/8/8c/US_aggregate_corporate_tax_rates_%281990_to_2016%29.jpg)
In 1994, US tax academic
James R. Hines Jr. published the important
Hines–Rice paper, which showed that many US corporations had chosen to ''shift'' profits to tax havens, instead of outright moving to the tax haven by executing a tax inversion.
Hines, and later again with US tax academic
Dhammika Dharmapala
Dhammika Dharmapala (born 1969/1970) is an economist who is the Paul H. and Theo Leffman Professor of Law at the University of Chicago Law School. He is known for his research into corporate tax avoidance, corporate use of tax havens, and the cor ...
, would show that
base erosion and profit shifting
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic a ...
(BEPS), was an even greater loss of corporate tax revenue to the US exchequer, than full tax inversions.
In 2018, academics identified a new class of tax inversion as details of Apple's Q1 2015 leprechaun economics transaction in Ireland emerged.
While Apple's tax residence remained in the US,
Apple moved the legal tax residence of a large part of its business to Ireland in a US$300 billion quasi-tax inversion of its intellectual property (IP).
[
The use of IP-based BEPS tools (e.g. Apple and Google's ]Double Irish
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
and Microsoft's Single Malt), has been attributed as the driver for the reduction in the ''marginal'' aggregate effective US corporate tax rate, falling from circa 30% in 2000, to circa 20% by 2016 (see graphic). For example, the CAIA BEPS tool Apple used in 2015 would give Apple an " effective tax rate" of under 2.5% on the worldwide profits Apple generated on this IP that was ''shifted'' to Ireland.
However, these IP assets had normally been housed in small Caribbean tax haven-type locations; Apple has been reported as using Bermuda and Jersey to house its IP. Such locations could not meet the 25% "substantive business test" of regulation T.D. 9592 for an inversion. However, Apple's 2015 BEPS transaction to Ireland was the first time a US corporation moved a substantial amount of IP to a full OECD jurisdiction where it already had a "substantive business operations".
In July 2018, Seamus Coffey, Chairperson of the Irish Fiscal Advisory Council and author of the Irish State's 2016 review of the ''Irish Corporate Tax Code'', posted that Ireland could see a "boom" in the ''onshoring'' of U.S. IP, via the CAIA BEPS tool, between now and 2020, when the Double Irish is fully closed. In February 2019, Brad Setser
Brad W. Setser is an American economist and former staff economist at the United States Department of the Treasury. He worked at Roubini Global Economics Monitor ("RGE"), as Director of Global Research, where he co-authored the book "Bailouts o ...
from the Council on Foreign Relations
The Council on Foreign Relations (CFR) is an American think tank
A think tank, or policy institute, is a research institute that performs research and advocacy concerning topics such as social policy, political strategy, economics, mi ...
, wrote a ''New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...
'' article highlighting issues with TCJA in terms of combatting power of BEPS tools.
Industries
In 2017, the Congressional Budgetary Office reported that of the 60 US tax inversions from 1983 to 2015 which the CBO officially recognize, over 40% came from three industries: Pharmaceutical preparations (9), Fire, marine, and casualty insurance (7), and Oil & Gas Well Drilling and Servicing (7).
The US Oil & Gas Well Drilling and Servicing and US Casualty Insurance inversions are mostly associated with the first wave of US tax inversions before 2004; the very first US tax inversion, McDermott International in 1983, was from the Oil & Gas Well Drilling and Servicing industry. These US companies that inverted in these two industries shared the common attributes of having mostly international client bases, and of having assets that were easily "portable" outside of the US. The assets of the Oil & Gas corporate tax inversions were already mostly held in securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling ...
vehicles often legally located in offshore financial centre
An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."
"Offshore" does not refer ...
s. Similarly, the assets of the Casualty Insurance corporate tax inversions were also mainly global reinsurance contracts that were also legally located in offshore financial centre
An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."
"Offshore" does not refer ...
s.
The US Life Sciences industry (Pharmaceutical and Medical Devices) became a significant part of the second wave of US tax inversions from 2012 to 2016. It also involved some of the largest and most public executed US tax inversions (e.g. Medtronic
Medtronic plc is an American medical device company. The company's operational and executive headquarters are in Minneapolis, Minnesota, and its legal headquarters are in Ireland due to its acquisition of Irish-based Covidien in 2015. While it ...
(2015) and Perrigo
Perrigo Company plc is an American Irish–registered manufacturer of private label over-the-counter pharmaceuticals, and while 70% of Perrigo's net sales are from the U.S. healthcare system, Perrigo is legally headquartered in Ireland for tax ...
(2013)), as well as the aborted 2016 inversion of Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
and Allergan
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
, which would have been largest inversion in history at US$160 billion.
In July 2015, ''The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' reported that the circa 4% " effective tax rate" being paid by US pharmaceuticals who inverted to Ireland made them highly acquisitive of other US firms (i.e. they could afford to pay more to acquire US competitors and redomicile them to Ireland). The WSJ listed the extensive post-inversion acquisitions of Activis/Allergan, Endo, Mallinckrodt and Horizon.
In August 2016, after the US Treasury blocked Pfizer's US$160 billion tax inversion to Ireland with Allergan, Bloomberg stated that "Big Pharma Murdered Tax Inversions".
Earnings stripping
An important concept in inversions are the tools required to ''shift'' untaxed profits from the corporate's existing operating jurisdictions to the new destination. This is known as ''earnings stripping''. Without these tools, a tax inversion might not deliver the expected tax savings, as the profits might arrive at the new destination having incurred full taxes in the jurisdictions in which they were sourced.
For example, when Medtronic inverted to Ireland in 2015, over 60% of the merged group's revenue still came from the US healthcare system. Similarly, over 80% of Allergan's revenues comes from the US healthcare system post its Irish inversion. Medtronic and Allergan, therefore, could only avail of Ireland's lower effective tax rates if they could ''shift'' US-sourced profits to Ireland without incurring full US corporate taxes. Studies have shown that the ''earnings stripping'' of US-sourced earnings is a critical component of reducing the aggregate effective tax rate post the inversion (per ).
The two main types of tools used in tax inversions are:
* ''Debt-based tools''. This is where the foreign parent of the newly inverted company raises debt to acquire the original US company. This debt is then "moved down" into the US subsidiary and the US profits are thus ''shifted'' untaxed to the foreign patent via interest payments on this debt. Early US tax inversions involved highly leveraged structures with real external debt.
* ''IP-based BEPS tools''. This is where the IP of the newly inverted group is moved to the lower-tax jurisdiction of the parent, who charges it out to the higher-tax jurisdictions in which the group operates (including its original US jurisdiction). This can only be achieved where the IP is already housed in an offshore location (e.g. Bermuda), so that its movement does not itself incur US tax charges.
created in the 2017 TCJA, directly targeted debt-based tools via the new BEAT tax, and introduce a competing US IP-based BEPS tool called the FDII tax.
Costs
There have been several estimates of the ''aggregate'' cost of US tax inversions to the US exchequer (also called the erosion of the US tax base). However, there is a significant variation in these ''aggregate'' estimates of tax erosion over the years due to two specific factors:
* ''Variation in US inversions''. Firstly, there has been material variation in the financial scale of inversions since 1983. In 2014, a Joint Committee on Taxation (JCT), estimated that stopping inversions would prevent US$19.5 billion in lost taxes over the next decade (2015–2024), or US$1.95 billion annually on average. At the time, this figure was just 0.4% of the estimated total US corporate taxation revenues for the next decade, of US$4.5 trillion (2015–2024). However, just three years later, the scale of US tax inversions had increased dramatically, leading the CBO to re-forecast in 2017 that by 2027, annual US taxes would be circa 2.5% (or US$12 billion) lower due to tax inversions.
* ''Effect of hybrid inversions''. Secondly, estimates can vary dramatically depending on whether the effect of hybrid inversions is included. The CBO (and other US State estimates above) ignore hybrid inversions. In 2016, tax academic Kimberly Clausing estimated that the loss to the US exchequer from all classes of inversions, using the broadest types of hybrid inversions (and all base erosion and profit shifting
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic a ...
earnings stripping activity), by US corporations was between US$77 to US$111 billion in 2012 (having been zero 20 years ago).
Destinations
US inversions
The US Congressional Budget Office and the Congressional Research Service have cataloged 85 US tax inversions since 1983 to 2017 (the CBO does not recognize all of them as official tax inversions). Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and ma ...
used this data to identify the most attractive destinations for US inversions titled ''Tracking the Tax Runaways'' which won the 2015 Pulitzer Prize for Explanatory Reporting
The Pulitzer Prize for Explanatory Reporting has been presented since 1998, for a distinguished example of explanatory reporting that illuminates a significant and complex subject, demonstrating mastery of the subject, lucid writing and clear pr ...
, and was updated to 2018.
The first wave of US tax inversions from 1996 to 2004 was mainly to Caribbean tax havens
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...
such as Bermuda and the Cayman Islands. These were mostly "naked inversions" where the company had little or no previous "substantial business activities" in the location. They also used debt-based ''earnings stripping'' tools to shift US profits to the new destination. The 2004 ACJA ended these types of "naked inversions" with IRS Section 7874.
A significantly larger second wave of US tax inversions from 2012 to 2016 was mainly to the OECD tax havens of Ireland, and after their 2009 reforms, to the United Kingdom. These inversions involved mergers with real companies that met the "substantial business activities" test of IRS Section 7874. These destinations also had advanced IP-based BEPS tools (e.g. the Irish CAIA tool, the Double Irish tool, the UK Patent box
A patent box is a special very low corporate tax regime used by several countries to incentivise research and development by taxing patent revenues differently from other commercial revenues. It is also known as intellectual property box regime, in ...
tool) that could deliver an " effective tax rate" closer to zero on profits ''shifted'' to the destination.
The destinations for the 85 US corporate tax inversions since 1983 are as follows:
UK inversions
A 2012 article in ''Tax Notes'' listed the 22 tax inversions of UK companies to other destinations from 2006 to 2010, until UK tax reform ceased further material inversions.
While the full list is not available, the US Tax Foundation
The Tax Foundation is an American think tank based in Washington, D.C. It was founded in 1937 by a group of businessmen in order to "monitor the tax and spending policies of government agencies". The Tax Foundation collects data and publishes ...
listed the nine most important UK inversions of which six went to Ireland ( Experian plc, WPP plc
WPP plc is a British multinational communications, advertising, public relations, technology, and commerce holding company headquartered in London, England. It was the world's largest advertising company, as of 2019. WPP plc owns many compan ...
, United Business Media plc, Henderson Group plc, Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
, and Charter International
Charter International plc was a large British engineering business based in London. It was acquired by Colfax Corporation in January 2012.
History
The British South Africa Company was founded in 1889 by Royal Charter. ), and one each went to Switzerland (Informa
Informa plc is a British publishing, business intelligence, and exhibitions group based in London, England. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.
It has offices in 43 countries and around 11,000 ...
), Luxembourg (Regus
IWG plc, formerly Regus, is a British holding company.[IWG PLC]
Bloomberg. Accessed June 2021. It provide ...
), and the Netherlands ( Brit Insurance).
Other jurisdictions
Few other jurisdictions outside of the US and the UK have experienced a material outflow of corporate tax inversions to other destinations.
Countermeasures
United States
There have been three phases of initiatives that the US Government have taken to counter US corporate tax inversions:
* ''2004 American Jobs Creation Act
The American Jobs Creation Act of 2004 () was a federal tax act that repealed the export tax incentive (ETI), which had been declared illegal by the World Trade Organization several times and sparked retaliatory tariffs by the European Union. It ...
(ACJA)'':
:In 2002, the US Treasury reported to Congress that there had been a "marked increase in the frequency, size, and visibility" of "naked inversions". The Treasury cited three concerns: the erosion of the US tax base, a cost advantage for foreign-controlled firms, and a reduction in perceived fairness of the tax system. In response, Congress passed the AJCA, which added Section 7876 to the US tax-code that effectively ended "naked inversions" to Caribbean-type tax havens where the US corporation had no previous business presence in the location. The main provisions were:
:* US inversions where the existing US shareholders owned more than 80% of the post-inversion group, or Expanded Affiliate Group (EAG), would not be recognized.
:* Where the existing US shareholders owned between 60% but less than 80% of the EAG, the inversion would be recognized as a foreign company but with restricted tax benefits.
:* Section 7876 included a "safe harbour" from its provisions where the EAG had an existing "substantive business presence" in the foreign country but left it to the Treasury to define what this meant.
:* Shortly afterwards, the Treasury stated that to meet the "substantive business presence" the EAG had to have had over 10% of its employees, and assets, and income in the foreign location.
* ''2012–2016 US Treasury Regulations'':
** In 2012, the Treasury issued regulation T.D. 9592 that increased the threshold for the "substantive business presence" safe harbour exemption from Section 7876, from 10% to 25%.
** In 2014, the Treasury issued tax notice 2014–52 that blocked various legal structuring techniques to circumvent the earlier ACJA and TD 9592 regulations; AbbVie and Chiquita cancel inversions.
** In 2016, the Treasury issued a series of rulings to clarify past rulings, and introduce new provisions that blocked additional legal structuring techniques to circumvent the ACJA.
** In 2016, two days after the final Treasury ruling in 2016, Pfizer announced that it was aborting its planned US$160 billion tax inversion to Ireland via a merger with Allergan plc.
* ''2017 Tax Cuts and Jobs Act
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
(TCJA)'':
: While the 2004 ACJA and the 2012–2016 Treasury Regulations sought to block US corporate tax inversions, the TCJA attempted to remove the taxation incentives by reforming elements of the US tax code. Such a reform had been completed by the UK in 2009–2012 (see below). The main provisions were:
:* Reduction in the headline US corporate tax rate from 35% to 21%.
:* Transformation of the US corporate tax code from a "worldwide tax system" to a hybrid-"territorial tax system".
:* Specific anti-US earnings stripping provisions such as the BEAT tax.
:* New US IP-based BEPS tools such as the 13.125% FDII tax rate.
In Q1 2018, U.S. multinationals like Pfizer announced in Q1 2018, a post-TCJA global tax rate for 2019 of circa 17%, which is close to the circa 15–16% 2019 tax rate guided by previous U.S. corporate tax inversions to Ireland including: Eaton, Allergan, and Medtronic. In March 2018, the Head of Life Sciences in Goldman Sachs made the following comment:
In a report to Congress in March 2019, the Congressional Research Service noted that "there are also indications that most tax motivated inversions had already been discouraged by the 2016 regulations" and that with the addition of the since the 2017 TCJA that "Some firms appear to be considering reversing their headquarters r past inversiondecision".
In June 2019, U.S.-based AbbVie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
announced an agreement to acquire Irish-based Allergan plc for US$63 billion; however the acquisition would not be structured as a tax inversion, and that the Group would be domiciled in the U.S. for tax purposes. AbbVie announced that post the 2017 TCJA, its effective tax rate was already lower than that of Irish-based Allergan plc at 9%, and that post the acquisition, it would rise to 13%. In 2014 the U.S. Treasury effectively blocked AbbVie's attempt to execute a tax inversion with Irish-based Shire plc.
United Kingdom
After losing 22 tax inversions from 2007 to 2010, mostly to Ireland, the UK moved to reform its corporate tax code from 2009 to 2012, executing the following:
* Reduction in the headline UK corporate tax rate from 28% to 20% (and eventually to 19%).
* Transformation of the UK corporate tax code from a "worldwide tax system" to a "territorial tax system".
* Creation of new IP-based BEPS tools including a low-tax Patent box
A patent box is a special very low corporate tax regime used by several countries to incentivise research and development by taxing patent revenues differently from other commercial revenues. It is also known as intellectual property box regime, in ...
.
In 2014, ''The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' reported that "In U.S. tax inversion Deals, U.K. is now a winner". In a 2015 presentation, the UK HMRC
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showed that many of the outstanding UK inversions from 2007 to 2010 period had returned to the UK as a result of the tax reforms (most of the rest had entered into subsequent transactions and could not return, including Shire
Shire is a traditional term for an administrative division of land in Great Britain and some other English-speaking countries such as Australia and New Zealand. It is generally synonymous with county. It was first used in Wessex from the beginn ...
).
Notable inversions
US inversions
Executed
Of the 85 tax inversions executed by US corporates to other jurisdictions, the following are notable:
* 1982 McDermott International
McDermott International, Ltd is a global provider of engineering and construction solutions to the energy industry. Operating in over 54 countries, McDermott has more than 40,000 employees, as well as a diversified fleet of specialty marine co ...
to Panama, first-ever tax inversion, and first ever "naked inversion"; only ever US tax inversion to Panama.
* 1994 Helen of Troy
Helen of Troy, Helen, Helena, (Ancient Greek: Ἑλένη ''Helénē'', ) also known as beautiful Helen, Helen of Argos, or Helen of Sparta, was a figure in Greek mythology said to have been the most beautiful woman in the world. She was believe ...
to Bermuda, second-ever tax inversion and also a "naked inversion".
* 1997 Tyco International
Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major bu ...
to Bermuda; Tyco would later spin-off Covidien who would execute the largest inversion in history with Medtronic in 2015; Tyco itself would merge with Johnson Controls in 2016 in the 3rd-largest inversion in history.
* 1998 Fruit of the Loom
Fruit of the Loom is an American company that manufactures clothing, particularly casual wear and underwear. The company's world headquarters is in Bowling Green, Kentucky. Since 2002 it has been a subsidiary of Berkshire Hathaway.
Products manu ...
to the Cayman Islands; entered into bankruptcy 3 years later and was then bought by Berkshire Hathaway
Berkshire Hathaway Inc. () is an American Multinational corporation, multinational conglomerate (company), conglomerate holding company headquartered in Omaha, Nebraska, United States. Its main business and source of capital is insurance, from ...
.
* 1999 Transocean
Transocean Ltd. is an American company. It is the world's largest offshore drilling contractor based on revenue and is based in Vernier, Switzerland. The company has offices in 20 countries, including Canada, the United States, Norway, Unite ...
to the Cayman Islands.
* 2001 Ingersoll Rand
Ingersoll Rand is an American multinational company that provides flow creation and industrial products. The company was formed in February 2020 through the spinoff of the industrial segment of Ingersoll-Randplc (now known as Trane Technologies) ...
to Bermuda; would "self-invert" to Ireland in 2009.
* 2001 Accenture
Accenture plc is an Irish-American professional services company based in Dublin, specializing in information technology (IT) services and consulting. A ''Fortune'' Global 500 company, it reported revenues of $61.6 billion in 2022. Accentur ...
to Bermuda, would later "self-invert" to Ireland in 2009 to become Ireland's first tax inversion and first Irish CAIA BEPS tool user.
* 2003 Michael Kors
Michael David Kors (born Karl Anderson Jr. August 9, 1959) is an American fashion designer. He is the chief creative officer of his brand, Michael Kors, which sells men's and women's ready-to-wear, accessories, watches, jewelry, footwear, and f ...
to the British Virgin Islands; only ever US inversion to the BVI, later self-inverted to the UK.
* 2009 Valaris plc
Valaris plc is an offshore drilling contractor headquartered in Houston, Texas, and incorporated in the UK. It is the largest offshore drilling and well drilling company in the world, and owns 56 rigs, including 40 offshore jackup rigs, 11 dril ...
to the United Kingdom, first US inversion to the UK.
* 2012 Eaton Corporation
Eaton Corporation plc is an American-Irish multinational power management company with 2021 sales of $19.63 billion, founded in the United States with global headquarters in Dublin, Ireland, and a secondary administrative center in Beachwood, ...
to Ireland with a $US12 billion merger with Cooper Industries
Cooper Industries was an American worldwide electrical products manufacturer headquartered in Houston, Texas. Founded in 1833, the company had seven operating divisions including Bussmann electrical and electronic fuses; Crouse-Hinds and CEAG ex ...
, 4th-largest inversion in history.
* 2013 Actavis
Actavis Generics (formerly known as Watson Pharmaceuticals and Actavis plc, prior to the acquisition of Irish-based Allergan, Inc., Allergan Inc) is a global pharmaceutical company focused on acquiring, developing, manufacturing and marketing bran ...
to Ireland with a US$5 billion merger with Warner Chilcott, and would later execute a US$70 billion merger with Allergan
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
in Ireland in 2015.
* 2013 Liberty Global
Liberty Global plc is a British-Dutch-American multinational telecommunications company with headquarters in London, Amsterdam and Denver. Its respective legal names are Liberty Global Plc, Liberty Global B.V. and Liberty Global, Inc., with ...
to the United Kingdom with a US$23 billion merger with Virgin Media
Virgin Media is a British telecommunications company which provides telephone, Cable television, television and Internet access, internet services in the United Kingdom. Its headquarters are at Green Park in Reading, Berkshire, Reading, Engla ...
, 2nd-largest inversion in history.
* 2013 Perrigo
Perrigo Company plc is an American Irish–registered manufacturer of private label over-the-counter pharmaceuticals, and while 70% of Perrigo's net sales are from the U.S. healthcare system, Perrigo is legally headquartered in Ireland for tax ...
to Ireland with a US$9 billion merger with Elan Corporation
Elan or Élan may refer to:
People
* Elan Atias (born 1975), American singer-songwriter
* Elán (musician) (born 1983), Mexican singer
* Poets of Elan, a group of Ecuadorian poets
Fictional characters
* Elan (Order of the Stick), a character in ...
, 6th-largest inversion in history.
* 2014 Burger King
Burger King (BK) is an American-based multinational chain store, chain of hamburger fast food restaurants. Headquartered in Miami-Dade County, Florida, the company was founded in 1953 as Insta-Burger King, a Jacksonville, Florida–based res ...
to Canada with a US$12 billion merger with Tim Hortons
Tim Hortons Inc., commonly nicknamed Tim's, or Timmie's is a Canadian multinational coffeehouse and restaurant chain. Based in Toronto, Tim Hortons serves coffee, doughnuts, and other fast-food items. It is Canada's largest quick-service rest ...
, 5th-largest inversion in history.
* 2015 Medtronic
Medtronic plc is an American medical device company. The company's operational and executive headquarters are in Minneapolis, Minnesota, and its legal headquarters are in Ireland due to its acquisition of Irish-based Covidien in 2015. While it ...
to Ireland with a US$48 billion merger with Covidien plc
Covidien was an Irish-headquartered global health care products company and manufacturer of medical devices and supplies. Covidien became an independent publicly traded company after being spun off from Tyco International in 2007. It was purcha ...
, largest inversion in history.
* 2015 Mylan
Mylan N.V. was a global generic and specialty pharmaceuticals company. In November 2020, Mylan merged with Upjohn, Pfizer's off-patent medicine division, to form Viatris. Previously, the company was domiciled in the Netherlands, with principal e ...
to the Netherlands in a merger with the international generics division of Abbott Laboratories
Abbott Laboratories is an American multinational medical devices and health care company with headquarters in Abbott Park, Illinois, United States. The company was founded by Chicago physician Wallace Calvin Abbott in 1888 to formulate known dr ...
; first merger of a US corporation with the non-US business of a US corporation.
* 2016 Johnson Controls
Johnson Controls International is an American
Irish-domiciled multinational conglomerate headquartered in Cork, Ireland, that produces fire, HVAC, and security equipment for buildings. As of mid-2019, it employed 105,000 people in around 2,0 ...
to Ireland with a US$17 billion merger with Tyco International
Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major bu ...
, 3rd-largest inversion in history.
Aborted
* 2014 Abbvie
AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories.
History
On October 19, 2011, Abbott Laboratories announced its plan to separate into two publicly traded compan ...
to Ireland with a US$54 billion merger with Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
, would have been the 2nd-largest inversion in history; blocked by US Treasury.
* 2014 Walgreens
Walgreen Company, d/b/a Walgreens, is an American company that operates the second-largest pharmacy store chain in the United States behind CVS Health. It specializes in filling prescriptions, health and wellness products, health information, an ...
to the United Kingdom, as it had already merged with US$16 billion UK-based Alliance Boots
Alliance Boots GmbH was a multinational pharmacy-led health and beauty group with corporate headquarters in Bern, Switzerland and operational headquarters in Nottingham and Weybridge, United Kingdom.
The company had a presence in over 27 countr ...
; decided to maintain its legal headquarters in the US.
* 2014 Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
to the United Kingdom with a US$120 billion merger with Astra Zeneca
AstraZeneca plc () is a British-Swedish multinational pharmaceutical and biotechnology company with its headquarters at the Cambridge Biomedical Campus in Cambridge, England. It has a portfolio of products for major diseases in areas includin ...
, would have been the largest inversion in history; Astra rejected Pfizer's GBP£55 per share offer.
* 2016 Pfizer
Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer ...
to Ireland with a US$160 billion merger with Allergan
Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
, would have been the largest inversion in history; blocked by US Treasury.
UK inversions
Of the 22 inversions executed by UK companies to other jurisdictions, the following are notable:
Executed
* 2006 Experian plc to Ireland with a "self-inversion", first ever UK inversion to Ireland.
* 2008 WPP plc
WPP plc is a British multinational communications, advertising, public relations, technology, and commerce holding company headquartered in London, England. It was the world's largest advertising company, as of 2019. WPP plc owns many compan ...
to Ireland, would later return to the UK.
* 2009 Shire plc
Shire plc was a UK-founded Jersey-registered specialty biopharmaceutical company. Originating in the United Kingdom with an operational base in the United States, its brands and products included Vyvanse, Lialda, and Adderall XR. Shire was ...
to Ireland, would later merge with Takeda Pharmaceuticals in 2018.
See also
*Base erosion and profit shifting
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic a ...
*Double Irish arrangement
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
*Tax haven
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
* Conduit and Sink OFCs
*Ireland as a tax haven
Ireland has been labelled as a tax haven or corporate tax haven in multiple financial reports, an allegation which the state has rejected in response. Ireland is on all academic " tax haven lists", including the , and tax NGOs. Ireland does no ...
Notes
References
Sources
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External links
Tax Inversions
Zachary Mider, Bloomberg Special Reports, 2015 ''Pulitzer Prize for Explanatory Reporting
The Pulitzer Prize for Explanatory Reporting has been presented since 1998, for a distinguished example of explanatory reporting that illuminates a significant and complex subject, demonstrating mastery of the subject, lucid writing and clear pr ...
''
Tax Inversions
Reports by the Financial Times
The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Nik ...
{{Tax resistance
Corporate taxation in the United States
Corporate taxation in the United Kingdom
Corporate tax avoidance
Tax inversions