President Obama clearly doesn’t like Medtronic’s plan to move its headquarters to Ireland through the acquisition of Covidien. Medtronic’s $43 billion acquisition of Covidien would be the largest tax inversion deal yet.
The deals, which have been termed the “holy grail of tax avoidance” by a number of U.S. politicians, have been picking up recently as a growing number of companies look for ways to reduce their tax burden. As many as 25 U.S. companies are considering relocating their headquarters to low-tax destinations, according to the Irish Times. The corporate tax rate in the United States is 35%—the highest nominal rate in the world, leading a number of companies to look for new domiciles in low-tax nations such as Ireland, the United Kingdom, Switzerland, and the Netherlands.
In a recent speech in Los Angeles, Obama said, without naming names, that companies looking to move their headquarters offshore for tax benefits are “technically renouncing their U.S. citizenship.” The Financial Times also quoted the President as saying: “My attitude is: I don't care if it's illegal. It's wrong... You don't get to pick the rate you pay.”
Democrats in both chambers of Congress agree and are supporting a law to limit such deals in the future. One bill, supported by U.S. Treasury Secretary Jacob Lew, would be retroactive to May of this year, potentially affecting the Medtronic–Covidien deal. Recently, four Senators introduced a plan known as the "No Federal Contracts for Corporate Deserters Act," to make such deals less attractive. A number of Republicans also have expressed their disfavor for such tax deals but don’t agree with Democrats on how to address the issue.
The chances of Congress passing that legislation in the near future, however, are limited.
As a result, the Obama administration is considering options to go around Congress and do away with many of the tax-shielding incentives involving corporate inversion deals, which include Medtronic’s planned $43 billion acquisition of Covidien.
Enacting policies to thwart future inversion deals would help buy time as the administration plans on overhauling the U.S. tax system.
As the President stepped up the rhetoric to criticize companies planning on relocating their headquarters to save on taxes, Medtronic's former CEO Bill George criticized the chief executive, telling NewsMax that the president is not leading. "I don't think you find any CEOs that I know who would say that this president and this administration is friendly to business," George said. "I think business has coped very well in spite of a White House that's had no fiscal policy and has been quite negative toward business."
