WASHINGTON (Reuters) - Some critics blame the 35-percent U.S. statutory corporate income tax rate for a recent wave of foreign reincorporations by U.S. companies, but a Reuters analysis shows many other factors were involved.
Here is more information on four of the six major companies doing inversions that were analyzed by Reuters.
The medical device maker’s buyout of Covidien Plc, of Ireland, is nearing completion. The new company will be managed from Minneapolis, but tax-domiciled in Ireland.
Reuters calculated a U.S.-specific, 2011-2013 average effective tax rate for Medtronic of 33.3 percent, while the Institute on Taxation and Economic Policy (ITEP), a think tank that looked at the same data another way, estimated 32.1 percent.
Counting all taxes paid worldwide, Medtronic has disclosed effective tax rates averaging 17.8 percent for that period.
Medtronic has $21 billion in earnings outside the United States (OUS). Inverting will not make it easier to access those earnings without paying U.S. tax, a company spokesman said.
But a Q&A on a Medtronic web site said: “The only way to allow Covidien to continue to invest its OUS cash in the U.S. without incurring an incremental U.S. tax was to structure this acquisition as an inversion.”
For fiscal 2014, Medtronic’s “standalone overall tax rate” was 18 percent; Covidien’s was 16 percent, the spokesman said.
The “overall tax rate” of the combined company will be about 1-2 percentage points lower than the companies’ estimated blended rate would be, he said.
“The reduction reflects the benefit from additional interest deductions. These interest deductions are based on debt Medtronic is taking in the U.S. to finance the deal,” he said.
The semiconductor equipment maker is buying Japan’s Tokyo Electron. The combined firm will be incorporated in the Netherlands and managed from California and Japan.
An Applied Materials spokesman referred questions to previous statements. Applied has disclosed 2011-2013 global effective rates averaging 37.1 percent. Applied’s 2011-2013 U.S.-specific effective tax rate averaged 14.5 percent, Reuters found. ITEP found an effective rate of 13.5 percent.
Applied said in 2013 the combined company’s 2017 effective rate would be about 17 percent. It also said the deal would result in “free and easing movement of cash around the world.”
The fast food chain has completed a buyout of Canadian coffee-and-donuts chain Tim Hortons. The two have reincorporated in Canada and renamed the combined company Restaurant Brands International Inc.
Before the deal, Burger King disclosed 2011-2013 global effective tax rates averaging 25.7 percent. A company spokeswoman said the deal “was always driven by growth and not taxes.” She declined further comment.
C&J Energy Services
In a deal that looks like an inversion in some ways, but not in others,the oilfield group is buying a unit of Nabors Industries Ltd, with the resulting company to be based in Bermuda. C&J disclosed 2011-2013 global effective tax rates averaging 36 percent. But ITEP’s U.S.-focused estimate was 20.3 percent and Reuters’ was 21.2 percent. A C&J spokesman said, “This is not a tax motivated transaction.”
Reporting by Kevin Drawbaugh; Editing by Amy Stevens and Martin Howell