Tyco Considers Moving Back To The US From Bermuda

by Mike Godfrey, Tax-News.com, New York

09 October 2002

Jack Krol, lead director of Tyco, said this week that the company was examining its Bermuda domicile, and would consider re-locating back to the US if the cost was not too great. He said that all aspects of the previous managerial regime, which ended with the departure of boss Denis Kozlowski after his indictment on sales tax evasion charges, were under review, and the Bermuda domicile was one of them.

The reasons for a re-location would perhaps be more cosmetic than financial: although amendments being made to some pieces of US legislation seek to punish companies which have expatriated to Bermuda and other low-tax jurisdictions by denying them access to US government contracts, it's not clear that such legislation - which may in any event be unconstitutional - would affect Tyco.

The company's Bermuda registration came about when it reversed into ADT, which already had Bermuda domicile, in 1995. Although the primary motive for such a domicile is low taxation, it doesn't prevent subsidiaries in high-taxing nations from paying tax, and Tyco in fact is estimating a 22.5% tax charge for the current year despite its Bermuda domicile.

Past estimates have suggested that Tyco saves about $400m a year from its Bermuda registration, mostly by not having to pay US income tax on less-highly taxed earnings from foreign countries. It's not clear though that the level of tax on earnings has all that much to do with the value of a company's shares, especially during a bull market, although of course more tax means lower dividends, and that may come to matter more if the present bear market continues to depress prices.

The biggest reason for a move to the US would have to be a need to be seen to be breaking with the past; but shareholders are likely to be unsentimental when it comes to valuing such a piece of sanctimonious behaviour.

Opinion in Congress and the US media on the subject of corporate inversion is finely balanced between 'patriotism' in terms of paying more tax to Uncle Sam, and a widespread understanding that it is the US tax system that is to blame for driving companies offshore in the first place. If the Congress can't come up with a new scheme to give tax rebates to major exporting companies that won't fall foul of the EU and the WTO, there are likely to be more companies leaving than returning, however 'unpatriotic' it may seem in some quarters.

Probably, Tyco will give long and earnest consideration to its domicile - and decide to stay where it is.

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