Biggest Tax Inversions and Which Companies Do It

Last updated on September 8, 2023

Tax inversions are nothing new. Companies have used them in the past to reduce tax liabilities. When tax inversions recently made headlines, criticism was quick to follow – even from President Obama. At a press conference on Thursday, he clearly expressed his opinion regarding tax inversions. Obama stated that, “We can’t solve the entire problem administratively, but what we are doing is examining, are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole?”

Many critics argue that tax inversions are harmful to the economy. The Financial Times examines how much is potentially lost by companies such as Medtronic.

“According to data compiled by Moody’s for the Financial Times, the biggest offshore cash piles held by companies pursuing so-called ‘tax inversions’ belong to Medtronic, a medical devices group; AbbVie, a drugmaker; and Applied Materials, a technology group.

“The deals enable US companies to shift their tax domicile to a country with lower tax rates by acquiring a foreign rival. The tax benefits include lower-cost access to existing offshore cash and to future non-US earnings.

“Thirteen inversion deals worth $178bn have been announced since the start of 2013, according to Dealogic. Nine other companies doing inversions do not disclose their offshore cash while Mylan holds just $174m outside the US.

“The deals have sparked political outrage, with President Barack Obama describing the companies as ‘deserters’ that are ‘renouncing their US citizenship’.

“Medtronic has predicted that its inversion would cut its effective tax rate by 1 to 2 percentage points from the 18 per cent it paid last year. Applied Materials said its deal would cut its tax rate from 22 per cent to 17 per cent. AbbVie said the inversion would reduce its tax rate from about 22 per cent to 13 per cent. However, the three companies have said that tax benefits are not the primary motivations for their deals.

“Attacks on inversions will ramp up again this week as lawmakers return to Washington and the Democrats seek to make them a campaign issue ahead of midterm elections on November 4.

“Chuck Schumer, a senior Democratic senator who will this week introduce legislation to curb the deals, told the FT: ‘We need to move quickly and aggressively to curtail inversions and prevent companies from using shady accounting practices to avoid their US tax obligation.’

“According to Richard Lane at the rating agency Moody’s, who compiled the figures, US non-financial companies hold a total of about $950bn in overseas cash and liquid investments.”