Cardtronics to move place of incorporation to U.K.
Taxes are a factor as ATM operator proposes merging with new European subsidiary
HOUSTONbased ATM operator Cardtronics is proposing to move its parent company’s place of incorporation from Delaware to the United Kingdom, in part to benefit from a “more competitive U.K. tax environment,” a spokesman said Wednesday.
Under the proposed change, which includes merging with a newly created European subsidiary that it wholly owns, Cardtronics would keep its North American headquarters in Houston. Its European headquarters would be in London. Shareholders will vote on the proposal this summer.
“Cardtronics is redomiciling in the U.K., where we already have a substantial business presence and approximately 60 percent of our employees, to enhance our global growth strategy and help build long-term stockholder value,” the company spokesman said by email. “We expect that locating our parent company in the U.K. will fortify our status as the leading global ATM owner/operator, help us compete more effectively for acquisitions on a global scale, and enable us to benefit from the more competitive U.K. tax environment.”
A news release late Wednesday afternoon said being in a global financial center like London would enable Cardtronics to be more effective in competing for global acquisitions and elevate its visibility to investors in the U.K. and Europe.
One local legal expert
said the proposal appears to be a tax inversion, a sometimes-controversial maneuver to lower a company’s U.S. tax burden.
Cardtronics denied this because “it is not the merger or acquisition of Cardtronics by an unrelated foreign company.”
Bret Wells, an associate professor of law at the University of Houston Law Center and an expert on tax inversions, said Cardtronics may be employing another lesserused tax inversion technique in which more than 25 percent of its assets, people and revenues are in the country where it is incorporating the new parent company.
“To achieve the U.K. tax rate and avoid the U.S. rate, the foreign parent must be respected as a non-U.S. company,” Wells said. “And under our existing law, that can only be done through a corporate inversion that carefully navigates existing law.”
Such inversions provide opportunities for companies to maintain their U.S. operations and then strip profits from those operations to affiliates incorporated in countries with lower taxes. If a company is based in the U.S. but has global operations, for example, it has to pay taxes on all profits brought back to the U.S.
With an inversion, the company moves its parent company abroad and makes the U.S. business a subsidiary. It can then open another subsidiary based abroad that uses loans, licensing fees or royalties to take money from the U.S. company in a way that reduces its tax obligation in the states. The taxes will then be paid in a country that has a lower tax rate, Wells said.
Wells said it may be disappointing to hear that a company would rather pay taxes in another country, but he mostly blames a U.S. tax code that he thinks should be updated.
“Today, a foreign-owned company has significant tax advantages over a U.S.based company,” he said.
Stockholders can vote on the proposal June 28. If approved, Cardtronics expects to change its place of incorporation early in the third quarter.
The formal announcement Wednesday illustrates the complexity of the proposal: “Subject to stockholder approval, the Company anticipates that the change of the place of incorporation will become effective early in the third quarter of 2016 following the merger of Cardtronics with one of its subsidiaries, with Cardtronics surviving as an indirect, wholly owned subsidiary of Cardtronics Group Limited, a newly formed English public limited company and currently wholly owned subsidiary of the Company, which will be re-registered as an English public limited company and renamed ‘Cardtronics plc.’”
Cardtronics stock is expected to be traded on the Nasdaq market with the existing CATM symbol.
In a statement, Cardtronics CEO Steve Rathgaber reiterated that the company will remain “fully committed to our customers and employees in the U.S., including Houston.”