The announcement earlier this week that Medtronic is buying up Covidien in a $43 billion “tax inversion” deal confirms that momentum is building for more and more companies to use this strategy as a way to avoid high U.S. corporate tax rates. Medtronic, a huge medical device maker headquartered in Minneapolis, Minnesota (headquarters shown), will buy Covidien, a smaller company in the same business. Although Covidien is run out of Mansfield, Massachusetts, it has been incorporated for tax purposes in Ireland since 2009.
Once the deal is complete, a new company will emerge with a much lower income tax liability because the corporate tax rate in Ireland is just 12.5 percent compared to the United States’ 39.1 percent rate, the highest in the world. The management of both companies will remain in place and the factories will stay where they are. The only thing that will change is the name of the company — New Medtronic — and the company's ability to keep its current stash of cash, estimated to be about $14 billion, away from Uncle Sam’s tax man.
Back in May it was estimated that 20 companies had made a similar move since 2012, but that number has been revised sharply upward: Forty-four companies have made the move, with more waiting in the wings. So far this year these “cross-border” purchases for tax purposes have totaled more than $117 billion, and that doesn’t count the largest deal, in which American pharmaceutical giant Pfizer offered to acquire British drug maker AstraZeneca for $100 billion. That deal, at present, hasn’t come together, but others have, illustrating the predictable consequences of Washington’s anti-capitalist mentality reflected in its creation of the highest corporate tax rates in the world.
Here’s a partial list of those successfully escaping Uncle Sam's grasp in just the last few years:
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Photo: AP Images