Abbott (NYSE:ABT) chairman & CEO Miles White took to the media today to speak out against a new measure that would prevent corporate inversions, like the one included in Abbott’s sales of its generics business to Mylan Inc. (NSDQ:MYL) and in Medtronic’s (NYSE:MDT) acquisition of Covidien (NYSE:COV).
These acquisitions agreements, as well as a handful of other mega-deals underway, include shifting the companies’ headquarters outside the U.S. where they will benefit from a more favorable corporate tax rate, especially on cash earned overseas. Not exempt from U.S. taxes, White emphasizes, are revenues collected prior to the inversion.
"Inversion is legal. Period. It’s allowed in the tax code," White wrote in an op-ed for the Wall Street Journal. "The raging debate about these decisions has been absurd, and people expounding on the topic are making wild claims that inversion is an abuse of the tax code, cheating and unpatriotic. It all makes for emotional and dramatic headlines and debate but ignores the facts."
The White House and a handful of lawmakers are looking to take some steam out of the growing corporate exodus by clamping down on inversions on a retroactive basis back to May 2014. That could dampen Medtronic’s $43 billion merger with Covidien, a deal which includes shifting Medtronic’s official headquarters from Minnesota to Covidien’s base in Ireland.
"What we need as a nation is a new sense of economic patriotism, where we all rise or fall together," Treasury Secretary Jacob Lew wrote in a letter to congressional tax committee leaders. "We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes."
Lew asked Congress to pass swift legislation to take the wind out of the rising trend of companies seeking inversion deals, and for lawmakers to further address the exodus through broader tax reform.
White criticized the message that corporate inversions are unpatriotic, insisting instead that U.S. corporate tax rates are to blame for pushing companies abroad.
"Inversions are legal. Not abuse. Not cheating," White wrote (full op-ed here). "To those spouting the histrionic rhetoric in opposition to inversion, I would suggest that some consideration of the facts would better inform your judgment, which might be more productively directed at how to make the U.S. and U.S. companies more globally competitive, including thoughtful and balanced reform of the tax code."
Medtronic has also taken steps to battle the tax-avoidance rhetoric, issuing an interactive graphic this week to outline potential changes to its tax position following the pending merger. Medtronic maintained that moving its headquarters overseas would only ensure that it can continue to use Covidien’s cash for U.S. investments.
"Today, Covidien does not pay an incremental tax to invest its OUS cash in its U.S. business. The only way to allow Covidien to continue to invest its OUS cash in the U.S. without incurring an incremental U.S. tax was to structure this acquisition as an inversion," Medtronic wrote. "While this does not change the accessibility to Medtronic’s cash, we will go from having the ability to use 33% of our overall cash-flow, to the ability to use 60% of the combined company’s cash flow."