How high US tax rates are causing companies to flee the country
The recent merger of California chip maker Applied Materials and Japanese company Tokyo Electron saved a lot of money by reincorporating in the Netherlands. From the New York Times:
. . . The merged company will save millions of dollars a year by moving — not to one side of the Pacific or the other, but by reincorporating in the Netherlands.
When Applied Materials announced its deal for Tokyo Electron, it said that its effective tax rate would drop to 17 percent from 22 percent as a result. For a company that had nearly $2 billion in profit in 2011, that amounts to savings of about $100 million a year.
Last year, the Eaton Corporation, a power management company from Cleveland, acquired Cooper Industries, based in Ireland, for $13 billion, and reincorporated there. The company expects to save $160 million a year as a result of the move.
In July, Omnicom, the large New York advertising group, agreed to merge with Publicis Groupe, its French rival, in a $35 billion deal. The new company will be based in the Netherlands, resulting in savings of about $80 million a year.
Also in July, Perrigo, a pharmaceutical company from Allegan, Mich., said it would acquire Elan, an Irish drug company, for $6.7 billion. Perrigo will also reincorporate in Ireland, bringing its effective tax rate to 17 percent from 30 percent, and saving the company an estimated $150 million a year, much of it in taxes.
Ireland’s 12.5 percent corporate tax rate is a big draw for some companies. Earlier in the year, Actavis, based in Parsippany, N.J., bought Warner Chilcott, a drug maker with headquarters in Dublin, and said it would reincorporate in Ireland, leading to an estimated $150 million in savings over two years.
“These companies are doing the math and seeing they can save a couple hundred million dollars by doing this,” said Martin A. Sullivan, chief economist at Tax Analysts, a nonprofit group that publishes analysis about global taxes.
But the small fortunes saved by inverted companies amounts to billions in revenue not collected by Washington. . . .The article has other examples:
Tyco went to Bermuda in 1997 to lower its tax bill. A year later, Fruit of the Loom moved to the Cayman Islands. And in 2001, Ingersoll-Rand reincorporated in Bermuda. . . .