US multinationals acquire foreign companies to avoid tax
Multinational companies increasingly look to overseas M&A to avoid US repatriation tax
US MULTINATIONAL companies are putting more of their overseas earnings into cross-border mergers and acquisitions to avoid tax.
A Financial Times report claimed that the companies are concerned over tax bills incurred through repatriating so-called “trapped cash” in other jurisdictions. This has prompted a debate about whether companies are prioritising tax issues over business decisions.
Use of cash in international deals by US buyers is at record levels according to the Dealogic banking analysis group. Cash-only deals accounted for 90% of international deal activity this year and last, it said.
Last week, Microsoft said that it would use $8.5bn in offshore cash to buy Skype, a Luxembourg-based company. The computer giant has been vocal in calling for a tax holiday that would allow companies to bring cash back to the US. This has been opposed by members of the US administration who claim that the money will go back to shareholders and will not be used for job creation.
The FT quoted an advisor, who said: “Companies have been asking bankers to find them targets in countries where they can use this cash. It is earning them zero and lowers the opportunity cost of an acquisition in an overseas market.”