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Monsanto Pursuing Inversion With Syngenta

by Mike Godfrey,, Washington

10 June 2015

Letters released by its target on June 8 confirmed that US agricultural seeds, biotechnology, and chemicals company Monsanto would move its corporate headquarters overseas under a proposed merger with Switzerland-based Syngenta AG.

A letter from Monsanto dated April 18, which was released by Syngenta upon its rejection of the former's unsolicited USD45bn merger approach, confirmed a proposal to establish a newly formed parent company incorporated and tax resident in the United Kingdom.

Given that the UK levies a corporate income tax rate of 20 percent – substantially lower than the US headline tax rate of 35 percent – and also offers concessionary treatment for income from patents under its patent box regime, a Monsanto-Syngenta merger would be regarded as the latest example of a corporate inversion.

Under US law, as long as at least 20 percent of a new group's shares are held by the foreign company's shareholders after a merger, US multinationals are able to move their tax residence abroad and away from the US corporate tax rate, even though management and operations remain in the US.

US Senator Dick Durbin (D – Illinois) immediately released a statement on June 8 pointing out that his proposed Stop Corporate Inversions Act of 2015 would raise the 20 percent ownership test to 50 percent and effectively prevent Monsanto from moving forward with its proposal to invert to the UK.

"It's clear that Monsanto – a company that has prospered and expanded in large part due to US taxpayer-funded programs and services – intends to reincorporate overseas as part of its proposed acquisition of Syngenta in order to avoid paying US taxes," he stated. "Congress can and should act now to close the loophole that allows corporations to avoid their tax responsibility."

However, there remains a political divide about the right course of action to tackle inversions. Other leading Democrat and Republican lawmakers appear to have decided that tax reform, to cut the corporate tax rate and change the way the US taxes foreign earnings, represents the only real long-term solution to inversions.

TAGS: tax | business | mergers and acquisitions (M&A) | corporation tax | United Kingdom | corporate headquarters | multinationals | transfer pricing | tax rates | Switzerland | United States | tax reform

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