An Obama administration crackdown on “tax inversion” deals, which allowed US companies to cut tax bills, has prompted a sharp rise in foreign takeovers of American groups.
The US Treasury in September all but stamped out tax inversions, which enabled US companies to pay less tax by buying a rival from a jurisdiction with a lower corporate tax rate, such as Ireland or the UK, and moving the combined group’s domicile to that country. The move was designed to staunch an exodus of US companies and an erosion in tax revenues but has left many American groups vulnerable to foreign takeovers. Once a cross-border deal is complete, the combined company can generate savings by adopting the overseas buyer’s lower tax rate. There have been $156bn of inbound cross-border US deals announced since the crackdown, compared with $106bn in the same period last year and $81bn a year earlier, according to Thomson Reuters data.
The biggest buyers have come from countries with lower tax rates such as Canada and Ireland, which have announced $26bn and $22bn of deals respectively. Before the crackdown, groups from Germany and Japan were the biggest buyers of US companies. Foreign buyers have announced $61bn worth of US acquisitions this year, an increase of 31 per cent on last year and the strongest start to a year for inbound cross-border deals since 2007, according to the data.