US Acquirers Cutting Taxes by Relocating to Europe after Mergers

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Many companies in the United States are planning to relocate to Europe in order to save billions of dollars in tax money. The trend is catching on, as the majority of acquisitions in 2013 have followed the similar tax inversion pattern, where US companies acquire a European business and then move the business to Europe as soon as the merger is complete to gain from paying lower tax rates. It comes as no surprise then, to find out that mergers and acquisitions such as these have grown abundant at a time when there has been an increase in calls for corporate tax reforms in Washington, from politicians in particular.

An example can be seen in Pharmaceutical takeovers so far this year, where Perrigo, a Michigan-based company has acquired Elan, an Irish biotech company. The company is relocating to Ireland where it expects to pay 17 percent in tax, in comparison to paying 30 percent if it had stayed in the United States. Estimated figures suggest that Perrigo will save around $118m in tax savings every year.

A similar pattern can also be seen in the pharmaceutical takeover where Actavis, a New jersey-based company merged with Warner Chilcott and will now be relocating to Ireland, where it will be paying a 17 percent tax rate, compared to 28 percent in the US. This will allow Actavis to save around $150m in the next two years.

The trend of relocating after a takeover or merger is rising according to merger and acquisition experts, who have suggested that the high tax rates in the country are forcing companies to consider relocating in order to increase their profits.

Mark Kingston, who is a tax partner at Linklaters, a law firm, considers many more companies to follow suit and continue relocating outside of the US after merging with or acquiring a company. He suggests that many companies have lost faith with Congress and the government to fix the tax rate issues any time soon, which has seen them relocating outside of the country in order to save money and enjoy the low tax returns.

Frank Aquila from the law firm Sullivan and Cromwell also agreed with the consensus that such reforms have coincided with the political debate between the Republicans, the Democrats and the White House in accordance with the tax rate in the United States. For the time being, this problem does not look like it will change anywhere in the near future, so there may be more companies and organizations that will relocate outside the United States after a merger or acquisition in order to save hundreds of millions of dollars in tax.

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