U.S. Tax Code: Encouraging Foreign Mergers?

August 1, 2013 12:13 by Clayton Reeves in Capital Markets, M&A  //  Tags: , , , ,   //   Comments (0)
As we reported Monday, several major mergers have been announced that involve U.S. companies acquiring foreign companies and changing their taxable residence to foreign countries.  One example is Perrigo agreeing to buy the Irish drug company Elan and move their headquarters to Ireland, lowering their tax rate from 35% to 12.5%.  Additionally, Omnicom Group announced plans to merge with France's Publicis Groupe, lowering their tax rate to 25% from 35% in the process.  This will no doubt rustle the bee hive of negative sentiment around the way some companies creatively avoid taxes (I see you, Apple). So, this begs the question, will these transactions continue and what does it mean for U.S. tax code? CNBC has asked the same question in a recent article. Michael Schwartz, a Director of Accounting & Taxes at WeiserMazars, recently said, "There is a tax on U.S. firms bringing profits from overseas, but if you're incorporated abroad, [the United States] can't tax it if you've merged with another company." Ian Shane, a tax lawyer at Golenbock Eiseman Assor Bell & Peskoe had a similar perspective, saying, "Without tax reform in the U.S., I think you will see more of these types of deals.  You have to start from the premise that most tax laws are a decade behind how business is done. More companies are global and looking globally, and taxes are part of the bottom line." People can complain all they want about the fact that corporations are attempting to lower their tax burden, but the real crux of the matter lies in a tax code that is complex, dated and less attractive than other countries'.  The government needs to realize that they can attempt to restrict U.S. companies all they want, but innovation will continue so long as their is financial incentive to do so.  It will be interesting to see how the tax policy decision makers respond to this trend.  Click to read the article on CNBC here.

Capital Markets in 2025: What Will Change?

PricewaterhouseCoopers recently released a report on the state of capital markets in 2025.  The report expects a shift eastward, as would be expected by most market participants. This shift will increase the global horizon for many companies, and force them to look outside of their own country for growth opportunities, partners, acquisitions and even an exchange to list themselves on.  Almost three quarters of respondents said that emerging companies in particular will look to another emerging market for a listing.  Developed companies, the majority said, would prefer to list in another developed market. In terms of the might BRIC, only China has lived up to its billing so far.  80% of respondents thought that the Chinese market would be where the majority of listings occur by 2025.  For India and Brazil, 38% and 30% of respondents believe those markets will be important, respectively.  Russia is only thought to be an important market by about one in ten survey takers. This shift to emerging market exchanges will have wide implications for capital markets. Political, legal and regulatory uncertainty are all larger issues in a developing country.  Foreign investors will have to be opportunistic, but cautious when selecting investments in these new exchanges. Click here to read the report from PwC.

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