As we announce the largest U.S. manufacturing companies (by revenue) in the 2014 IW US 500 rankings, it’s instructive to point out that there’s an entire group of companies that, for all intents and purposes, seem bound and determined to no longer be eligible for inclusion in that list. These are the companies that have chosen to go offshore—not for production or sourcing purposes, but strictly financial—to reestablish themselves as foreign companies.
This practice, known as tax inversion, basically involves a U.S.-based company acquiring and then merging with another company based in another country, where the corporate tax rate is significantly lower than the U.S. rate of 35% (by most measures the highest corporate tax rate in the world). Ireland in particular has emerged as a preferred country to do tax inversion deals with, as the country has a corporate tax rate of only 12.5%, nearly one-third the rate U.S. companies are taxed at.
These tax inversion deals have proliferated in the past few years, especially in the pharmaceutical sector which, as pointed out by the Wall Street Journal, is trying to “reshape itself amid rising pressure on healthcare spending and a number of patent expirations that threaten revenue growth.” But manufacturers of other sectors are certainly just as interested in gaining any kind of tax advantage they can, even if that means giving up their identity as a U.S. company (in some cases, though, the companies’ shift offshore is more of a symbolic move as they end up keeping most of their executives and employees in the U.S.).
In the gallery that follows, we take a look at several of the more prominent tax inversion deals in recent years, as well as a couple deals that failed to go through but which signal the intent of the potential acquirer to become a foreign company.