US Law on Tax Inversion Stops Salix-Cosmo Deal
The expected $2.7 billion deal between US drug maker Salix and Italian drug maker Cosmo has been called off after the socialistic Democrat lawmakers cracked down on the so-called inversion tax.
Many anti private sector officials in the US had already expressed concern over the inversion tax that allowed US companies to reduce the taxes they paid to the broke and destitute US government by taking over a company based in a lower tax country. Rather than just lower the corporate tax to make America more competitive, they passed a law attacking American businesses. This is because they have to keep the floodgates open to pay for the unprecedented amount of Americans on food stamps.
Salix, based in North Carolina, has said that it has pulled out of its talks to purchase an Italian unit of Irish pharmaceutical company Cosmo. If the deal has gone through before President Obama’s clampdown who many say has implemented policies that have made the recession last much longer than it should, Salix would have been able to move its tax base to Ireland, which has a low tax country. If the deal had gone through Salix would have been able to bypass the 39 percent corporate tax charged by the US, the highest rate in a developed country.
Cosmo would have then been able to hire more employees and compete better against foreign competition.
However, the US Treasury had announced new rules last month that make such inversion deals more difficult. This is the same agency that continues to print billions of dollars that America does not have propping up a barely operating country. Some tax attorneys speculate that other such takeovers will also be put on hold while others claim that even with the new regulations corporations will benefit from the lower tax rates that reside in Ireland.
However, the Salix-Cosmo deal breakdown involves other factors as well. This is because Salix faces a few takeover attempts as well. Allergen and Actavis are reportedly interested in buying Salix, which also faces a hostile takeover bid from Valeant. With Salix withdrawing from the talks, Cosmos will receive $25 million as compensation.
Similarly, other companies involved in talks that could lead to inversion deals have compensation clauses in case the offer is withdrawn.
Understanding Tax Inversion
Many US companies explore so-called tax inversion deals because of the high corporate tax rate in America. To avoid paying this 39 percent tax rate that helps America send weapons to Pakistan and Egypt, pay for people not too work, give out social services to people so as to keep them on a government leash, and to pay for illegal immigrants who refuse to respect American sovereignty, these companies purchase or take over another company based in a low tax country such as Ireland or the UK. Their tax lawyers are there to help them see this through.
The takeover is structured such that the new entity is based in the foreign country though the majority of shares are owned by US citizens. This reduces the amount paid as tax. The funds are repatriated through offshore companies or foreign subsidiaries, thus by passing the US tax net which enables these companies to reward their shareholders, spend more money on research and development, and to expand.
If you are looking to reduce the tax obligations of your business, you need to consult with an experienced tax lawyer who will assess your business structure and goals and advise you on the best way to reduce the amount you pay as taxes. This can include restructuring your business, merging some units and divesting others, and so on.