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Press watch: Has the US tax inversion crackdown prompted more foreign takeovers?

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The Financial Times (15 March) reports that the Obama administration’s clampdown on tax inversions by US multinationals has ‘had the perverse effect of prompting a sharp increase in foreign takeovers of American groups’.

A ‘tax inversion’ occurs when a US corporate group acquires a company from a jurisdiction with a lower tax rate – say, based in the UK, Ireland, Luxembourg or Canada – and moving the entire group’s domicile to the jurisdiction of that acquisition in order to enjoy the lower tax rate. In an effort to stem the outflow of US companies to tax-friendlier shores and protect its own tax base, the US Treasury introduced legislation in September to make such inversions more difficult, but recent figures indicate the move has left many US groups ‘vulnerable’ to acquisition by foreign companies, and the US company benefits from the (often lower) tax rate of the overseas parent.

According to the newspaper, since September ‘there have been $156bn of inbound cross-border US deals announced, compared with $106bn in the same period last year and $81bn a year earlier’; and the biggest acquirers have come from Canada, which has announced $26bn worth of deals, and Ireland, which has announced $22bn worth of deals. So far this year, according to the FT, ‘foreign buyers have announced $61bn worth of US acquisitions, an increase of 31% on last year’.