Merged Firm To Move For Tax Benefit
Fertilizer maker CF Industries and Dutch rival OCI NV, which agreed to merge in August, said they would move the tax residency of the combined company to the Netherlands from the U.K., in a move to satisfy inversion rules put in place by the U.S. Treasury.
When the deal was signed, Illinois-based CF said it would lower its overall tax rate to 20% from 34% by moving its address to the U.K. In the Netherlands the corporate tax rate is 25%.
Inversions have helped drive mergers-and-acquisitions activity to record highs as companies have looked to foreign deal making for tax savings. In November, the U.S. Treasury unveiled new rules that beefed up existing laws governing inversion deals.
It limited the ability of U.S. firms to “country-shop” — that is, acquire a foreign target in one country but move to a different one. U.S. firms who want an inversion deal must now take the address of their foreign merger partner. That makes inversions harder to do by whittling the pool of merger partners to those in attractive jurisdictions.
The U.K. has been among the most popular inversion destinations because American executives are comfortable with its language and lifestyle and can benefit from its increasingly favorable tax rules.
The Netherlands, meanwhile, has been criticized for a corporate rule book that some say tilts too far in favor of management at the expense of investors.
Drugmaker Mylan NV, which relocated to the Netherlands in February through an inversion, used an unusual takeover defense to repel a takeover bid from Teva Pharmaceutical Industries Ltd. last summer, evoking grumbles from some investors.
Last month, CF said it was committed to the transaction and was considering taking a Netherlands address.
The Treasury’s new rules apply to deals in which the U.S. company’s shareholders end up with more than 60% of the combined entity. Under the CF and OCI deal, CF shareholders would own more than 70% of the merged company.
By being a tax resident of the Netherlands, where OCI is incorporated, the new holding company would satisfy the requirements of the U.S. Treasury’s notice, CF said.