Thursday, June 19, 2014

The Latest Trend - U.S. Companies Acquiring Overseas Companies and Relocating Overseas

The latest trend in Corporate America to avoid paying taxes to Uncle Sam is to acquire or merge with a company headquartered in corporate-tax friendly countries, allowing them to and relocate the U.S. headquarters overseas to that country. In a sense, U.S. corporations are acquiring tax havens.

The latest to do this is Medtronic, a medical device maker currently headquartered in Minneapolis, Minnesota, USA. The tax haven they are acquiring is Covidien, also a medical device maker but headquartered in Dublin, Ireland. Ireland's top income tax rate for corporations is 12%, significantly less than the United States' 35% top income tax rate for corporations.

Guess where the headquarters of Medtronic will be after the acquisition? It's already decided. No surprise, it will be in Dublin, according to Medtronic's press release. That means the new Medronic will likely funnel all profits into Dublin and keep it out of the U.S.

Now, Medtronic did say in its press release that they will commit an additional $10 billion in technology investments over the next 10 years. Nevertheless, billions of dollars in overseas profits will not be introduced to the U.S. economy.

In fact, Medtronic is already withholding overseas profits from the U.S. economy. On page 12 of its 2013 annual report, they disclosed that "repatriation of certain earnings of subsidiaries outside the U.S. may result in substantial U.S. tax cost."  The way I translate that is they have no plans to repatriate overseas profits under penalty of the Internal Revenue Code.

This acquisition is just the latest example. The trend has already started. The Internal Revenue Code is essentially causing the job creators to leave the U.S.  The best way to stop that is to repeal the Internal Revenue Code.

The FairTax proposal (H.R. 25) will do just that – repeal income taxes not only for corporations but also individuals and replace the revenue with a consumption tax. With corporate income taxes no more, global companies would be able to freely move their overseas profits to the U.S. tax free. With more money in U.S. banks, there would be more money to loan. The more money borrowed in the U.S., the more money spent in the U.S., the more jobs created in the U.S. 

For more information about the FairTax, visit the official FairTax website at

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