U.S. Treasury Seeks To Dampen Corporate Inversion Flood

The U.S. Treasury announced Tuesday morning its new action plan to dampen the rate at which mergers and acquisitions are happening.

M&A activity has been furious from the end of 2013 and throughout 2014. The Treasury Department thinks that a majority of M&A activity as of late has been the result of an incentivised business ecosystem attempting to seek lower expenses and higher revenues.

Specifically, the Treasury seeks to:

• Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans.
• Prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free.
• Close a loophole to prevent an inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax.
• Make it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity.

Capital IQ highlighted well before "corporate inversion" became a mainstream media buzzword that a surprisingly small of amount of big ticket M&A deals were actually classified as “corporate inversions.” Only 1.4 percent of the global 518 worldwide M&A deals prices above $1 billion are classified as “corporate inversions.” In fact, between 1994 and 2000, 17 deals were inversions; from 2009 to present, 35 deals are classified as inversions.