New U.S. tax rules chill 'inversion' deal-making; shares dive

Tue Sep 23, 2014 6:28pm EDT
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By Kevin Drawbaugh and Soyoung Kim

WASHINGTON/NEW YORK (Reuters) - Tough new U.S. government rules on corporate "inversion" deals, aimed at making the tax-avoidance transactions less desirable, undermined share prices in nearly a dozen companies on both sides of the Atlantic on Tuesday.

Analysts and tax lawyers were studying the damage to deals currently in the works and the outlook for future such deals, in which U.S. companies escape high taxes at home by shifting their domiciles abroad.

Although the new rules will make some deals costlier and others more difficult, fast-food chain Burger King Worldwide Inc BKW.N said it will proceed with its $11.5 billion transaction with Canada's Tim Hortons Inc THI.TO.

"This deal has always been driven by long-term growth and not by tax benefits," the two companies said in a statement.

Corporate deal-makers were surprised by harsher-than-expected changes to the inversions rulebook unveiled by the Treasury Department late on Monday. Inversions have surged this year and caused concern in Washington about the threat they pose to the U.S. corporate income tax base.

Rule changes include blocking what the Treasury dubbed "creative" strategies to move cash around or to bring overseas profits into the United States without paying U.S. taxes, and redefining inversions to make shifting tax domiciles more difficult.

Effective immediately, the rules will mean little for companies that have already inverted. But for at least 10 companies in the midst of completing deals, and for those considering inversions, the impact could be significant.

Tax experts said the rules would have the biggest impact on companies that invert to gain lower-cost access to unrepatriated profits, or earnings held overseas to avoid U.S. taxes.   Continued...

The Burger King logo is seen through a Tim Horton's doughnut hole in a photo illustration outside a restaurant in Toronto August 29, 2014. REUTERS/Chris Helgren