New Tax Inversion Regulations will Hurt M&A, Survey Shows

The U,S. Treasury Department issued rules to inhibit companies from pursuing so-called tax inversions. M&A is on the rise, but inversions aren’t the cause.

23 September 2014


Today, the U.S. Treasury Department issued new rules designed to inhibit companies from engaging in so-called tax inversions. An inversion involves moving a company’s headquarters overseas, using a merger or acquisition, to avoid paying U.S. taxes.

Inversions typically involve an American company buying a smaller, foreign company and then redomiciliing overseas, where taxes are lower, even though most core operations remain in the U.S.

The new rules would make this process harder, or result in significant tax consequences for some types of inversion practices.

Dealmakers See Cross Border Barriers Form

Last week, we asked 350 global M&A professionals what the consequences would be if someone proposed legislation to restrict tax inversions. The result: 60 percent said that international government policies to retain tax revenue will make it more difficult to close cross-border transactions.

The market is reacting. Indeed, the announcement already pulled down the shares of companies that are targets for pending deals. In Europe, stock in AstraZeneca, Shire, Actelion, and Smith & Nephew all fell.

Inversions Not a Major Deal Driver

Currently, M&A activity is on the rise, but inversions aren’t the cause. Corporate inversion deals are actually a tiny percentage of overall M&A activity — approximately 0.1 percent.

The tax benefits of relocation are simply by-products of well-executed, strategic M&A. Deals like Burger King’s acquisition of Canadian firm Tim Hortons are not primarily driven by tax savings. By making it more difficult for dealmakers to explore cross-border transactions, Congress and other government agencies actually run the risk of hindering what is currently a healthy period of inorganic growth.

Ian Bruce

Ian Bruce

Ian Bruce is the VP of Corporate Communications at Intralinks. He has 20 years of international marketing experience across software, hardware, consulting, and financial services at both VC-backed start-ups and large multinationals. Prior to joining Intralinks, Ian held various marketing and communications roles at Avid Technology, HP, Novell, Systinet, and CSC.

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