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U.S. Corporate Tax Perspective Fueling Inversion Deals
Author: Scarinci Hollenbeck, LLC
Date: March 28, 2014
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As the U.S. tax climate – which is already one of the most stringent in the developed world – threatens to grow harsher, the corporate world is seeing an uptick in so-called “inversion” deals, according to Law360.
Companies that undergo inversions effectively give up their U.S. citizenship in order to move overseas – typically, into countries with lower corporate tax rates. Experts are predicting that deals structured in this way will continue to increase amid uncertainty in the future of U.S. tax law.
In a recent high-profile inversion deal, Chiquita Brands International Inc. structured its acquisition of Irish rival Fyffes PLC as a merger, allowing the company to effectively move to the lower-taxed country, according to Fresh Plaza. Chiquita says that the move won’t decrease its U.S. tax liability, but it will keep Fyffes from being considered by the IRS.
The acquisition is being conducted via a Dublin-based holding company, known currently as Twombly One Ltd., which will buy out the shareholders of both companies, according to the news source. Once Twombly One owns both Chiquita and Fyffes, it is expected to change its name to ChiquitaFyffes PLC.
While Chiquita stressed that the move was not intended as a bid to avoid U.S. taxes, the corporate tax rate in Ireland – 12.5 percent – is significantly lower than the U.S. corporate tax rate of 35 percent, according to Fresh Plaza. While the move may not change Chiquita’s 2014 tax liability, it may allow the new company with its tax planning in years to come.
“It is greatly improbable that they have chosen Ireland as its domicile because of its superior banana-growing climate,” Edward Kleinbard, a University of Southern California law professor and a former chief of staff for Congress’s Joint Committee on Taxation told the news source. “There may not be any immediate U.S. tax consequences, that is true, but it positions the combined company to shift future income growth outside the U.S. tax net.”
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