US MEDICAL TECHNOLOGY COMPANY Steris has re-opened the US tax inversion debate with its $1.9bn (£1.2bn) acquisition of UK health services provider Synergy.
There has been a spate of US businesses seeking to acquire foreign companies in order to escape the punitive corporate tax environment in the States. The tactic, known as inversion, is primarily motivated by the disparity between the US’s high 35% corporate rate and the UK’s imminent 20% rate, brought in by the coalition to attract additional business to the UK. The current UK rate is 21%.
In a statement to the markets, Steris said the deal would save $30m in back-office costs, while the shift in domicile would see its effective rate drop from 31.3% to around 25% from next April.
The Synergy deal comes just months after the collapse of Pfizer’s attempted takeover of AstraZeneca, at least in part motivated by tax. Last month, San Francisco-based hedge fund Marcato contemplated a move for Intercontinental Hotel Group which would bring with it a UK tax base, while the latest development could derail Burger King’s $11bn (£6.7bn) acquisition of Tim Hortons, the Canadian coffee chain.
Significant steps have been taken in the US to impinge on the practice, with short-term measures taken in September which will see US businesses meet a raft of new provisions if they want to buy a foreign firm and relocate their headquarters. More permanent legislation is being worked on, but is expected to take a matter of years.
As such, an American firm looking to shift their tax base overseas will have to shake up their investor base to ensure at least a fifth of the expanded business is held by new investors. The latest rules will apply to all deals yet to be rubber-stamped.
President Barack Obama has denounced so-called tax inversions as unpatriotic and has urged congress to stop them.
“They’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share,” Obama said recently of businesses looking to invert.
The move must be considered in the context of Pfizer’s expected return for AstraZeneca, according to Panmure Gordon analyst Savvas Neophytou.
The US pharma firm has to wait until 25 November under UK takeover rules before it can make a new bid, having had its original offer turned down five months ago.