Ireland-bound Eaton is latest to end U.S. corporate citizenship

Tue May 22, 2012 11:45am EDT
 
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By Nanette Byrnes

(Reuters) - Eaton Corp's purchase of electrical equipment maker Cooper Industries means another U.S. company will soon leave the United States in favor of relocating its headquarters to a foreign country with sharply lower taxes.

In the case of diversified industrial manufacturer Eaton (ETN.N: Quote), a complicated corporate structure will allow it to become part of an Irish corporation and enjoy that country's low 12.5 percent corporate tax rate.

The top U.S. corporate tax rate is 35 percent, the highest in the world, though few companies actually pay that much due to abundant loopholes that lower their effective rates.

The Eaton-Cooper CBE.N deal comes as the U.S. Congress inches toward a broad corporate tax code overhaul. The deal could add momentum to that effort, with Republicans arguing that high U.S. tax rates can drive companies to drastic measures.

In what could be a painful drain on the Treasury over time, at least seven U.S. companies in recent months have chosen through acquisition or merger to renounce their U.S. corporate citizenship by relocating to Ireland, the Netherlands, Switzerland or other lower-tax countries.

"There have been more of these in the last two months than in the five years before," said Bob Willens, an independent tax analyst and publisher of The Willens Report.

The Eaton-Cooper deal will lead to $160 million in annual tax savings for the combined company, even though Eaton in practice already pays far less than 35 percent. That is thanks to its foreign subsidiaries, many of which are already in low-tax countries such as Luxembourg and the Cayman Islands.

Eaton Chief Executive Sandy Cutler told Reuters in an interview that synergies, not tax reduction, were the primary motivation for the deal. Still, it is clearly structured to ensure the joint company will be Irish.   Continued...