Saturday, August 2, 2014
Wall Street Journal Tax Report: An 'Inversion' Deal Could Raise Your Taxes: Shareholders Are Likely to Owe Capital-Gains Tax, by Laura Saunders:
U.S. companies are busy buying overseas firms in deals that reduce their tax payments. Ironically, though, these mergers could saddle shareholders with higher tax bills.
In an "inversion," a U.S. firm merges with a foreign one, and shifts much of its income abroad. For corporations, the goal is simple: to exchange the U.S.'s steep corporate tax rate, which runs as high as 35%, for a much lower one elsewhere. Take AbbVie, a U.S. pharmaceutical firm that plans to merge with Irish drug firm Shire this year. Once the deal is consummated, the combined company will be taxed as a U.K. corporation with an estimated rate of about 13% by 2016. Other U.S. companies that have considered or are pursuing inversions are Pfizer, Medtronic, Walgreen, Chiquita Brands International, Applied Materials, Salix Pharmaceuticals, Mylan and Auxilium Pharmaceuticals.
Shareholders in companies pursuing inversions are likely to owe capital-gains tax if the deals occur, but, unlike with other taxable mergers, they won't receive any cash payment to help cover it. The deals are taxable because the U.S. company, although it will ultimately control the foreign firm, is technically the one that's being acquired, says Robert Willens, an independent tax adviser in New York. The U.S. firm's shareholders will receive new shares to replace their old ones. That exchange is considered taxable by the IRS. ...
Here are three tax-minimizing strategies for investors coping with inversions.
- Offset gains with losses
- Give the stock to someone in a lower tax bracket
- Donate the stock