Saturday 10 December 2016

Q&A: Latest tax 'inversion' deal by US giant puts us back in spotlight

Published 27/01/2016 | 02:30

Apple chief Tim Cook on his visit to Ireland last November. Photo credit: Niall Carson/PA Wire
Apple chief Tim Cook on his visit to Ireland last November. Photo credit: Niall Carson/PA Wire

Q: More tax controversy surrounding Ireland. What is this about now?

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A: We're back in the headlines because Johnson Controls, a US maker of car batteries and heating and ventilation equipment, has agreed to buy Irish-based Tyco International in a $16.5bn (€15.2bn) deal that will ultimately lower the former's tax bill.

Q: Hold on. I thought the latest big tax controversy involved Apple?

A: That's a different issue. Europe is probing Apple to see whether it had a special tax arrangement with Ireland. We're still waiting on a verdict and we've been told not to expect one until after the forthcoming General Election. However, adding to the intrigue, it emerged that Apple boss Tim Cook recently held talks with Brussels, although we don't know if that was to reach some sort of a deal.

But that's a separate issue to the Johnson deal. By moving its headquarters to Cork, Johnson Controls would become the latest major US company to carry out a so-called 'tax-inversion', in which a US company escapes high US taxes by reincorporating abroad.

Q: An inversion? That sounds painful. Is it legal?

A: Yes, but with an election looming in the US, it doesn't look good for big, profit-making companies to be trying to wangle their way out of paying taxes. Hence Hillary Clinton's claim that it's outrageous. In an inversion, the American company typically buys a smaller foreign rival and relocates, at least on paper, to the rival's home country so that the new combined company is not based in the United States.

Q: If these companies are trying to avoid US tax, then why isn't the US government doing anything about it?

A: It has been, sort of. But its efforts have been pretty ineffectual. In 2014, the US government announced with much fanfare that it was trying to limit the number of inversion deals, but although it may have slowed the deal flow, it didn't end the practice as decisively as it may have hoped. The US Treasury also announced further rules in November, amid the largest inversion deal so far, also involving Ireland, when drugs giant Pfizer struck a record-breaking $160bn deal to buy Allergan that would cut its global tax bill by moving its headquarters here.

Irish Independent

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