It’s destination overseas yet again
Houston-based ATM operator Cardtronics wants to relocate to London in a move that would cut the company’s U.S. tax bill. But don’t call it a tax inversion, the company says.
Well, if it walks like a duck and quacks like a duck, how is it not a duck?
Cardtronics relies on a technicality to escape the stinging tax inversion label. Rather than buying a smaller company overseas and then moving to its location, CEO Steve Rathgaber created a foreign subsidiary and merged with it. Big difference, right?
The result is the same. Cardtronics will become a British company and pay a lower tax rate in the United Kingdom. The new company will also be able to use accounting procedures to strip out all of the profits from U.S. operations to avoid paying taxes here, a process known as earning stripping.
Using tax inversions to avoid paying U.S. taxes has been angering the public and Congress for years now, which is another reason Cardtronics is quick to reject the label. The U.S. Treasury Department has also been using regulations to crack down on inversions because Congress refuses to act.
Pharmaceutical giant Pfizer gave up on its merger with Allergan earlier this month because the Treasury Department intervened.
Cardtronics, though, has some legitimate reasons for making the move and will likely avoid getting into trouble. There’s an exemption if more than 25 percent of the compa-
ny’s assets, people or revenues are in the country where it is incorporating.
Cardtronics said 60 percent of the company’s employees already live in the U.K., and most of its business expansion will be outside the U.S.
Noble Energy made the same argument when it left Houston and moved its headquarters to the Cayman Islands in 2002 and then to London in 2013.
Regardless of whether a company has a good excuse, the real problem is a U.S. tax code that encourages overseas moves.
In a bid to keep U.S. companies from moving operations outside the country, Congress decided to tax every penny a U.S. company makes worldwide. Many countries, like the U.K., tax the company only on the money it makes at home.
The U.S. tax code is in desperate need of revision for this and many other reasons. But rewriting the code will require Republicans and Democrats to work together and negotiate compromises.
Unfortunately, our political system doesn’t seem up to it.