U.S. companies look overseas for tax relief

These tax-lowering overseas deals, combining operations with foreign businesses have raised concerns among some U.S. lawmakers over the potential for lost tax revenue.
By TOM MURPHY, Associated Press Published: July 15, 2014
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A growing number of U.S. companies are looking to trim their tax bills by combining operations with foreign businesses in a trend that may eventually cost the federal government billions of dollars in revenue.

Generic drugmaker Mylan Inc. said Monday it will become part of a new company organized in the Netherlands in a $5.3 billion deal to acquire some of Abbott Laboratories’ generic-drugs business. The deal is expected to lower Mylan’s tax rate to about 20 percent to 21 percent from 35 percent in the first year and the high teens later.

The Canonsburg, Pa.-company’s deal follows a path trod by several other U.S. drugmakers in recent months. AbbVie Inc. has entered talks with Shire Plc. over a roughly $53.68 billion deal that would lead to a lower tax rate and a company organized on the British island of Jersey.

Last month, U.S. medical device maker Medtronic Inc. said that it would buy Ireland-based competitor Covidien for $42.9 billion. The combined company would have executive offices in Ireland, which has a 12.5 percent corporate income tax rate. And drugstore chain Walgreen Co. also is considering a similar move with Swiss health and beauty retailer Alliance Boots.

These tax-lowering overseas deals, which are called inversions, have raised concerns among some U.S. lawmakers over the potential for lost tax revenue. But business experts say U.S. companies that find the right deal have to consider inversions due to the heavy tax burden they face back home.

At 35 percent, the United States offers the highest corporate income tax rate in the industrialized world. By contrast, the European Union has an average tax rate of 21 percent, said Donald Goldman, a professor at Arizona State University’s W.P. Carey School of Business.

The United States also taxes the income companies earn overseas once they bring it back home. The tax is the difference between the rate the company paid where it earned the income and the U.S. rate.