Latest Corporate Inversion: Johnson Controls and TYCO

According to New York Times’s Dealbook, Johnson Controls has agreed to merge with Tyco to redomicile from the United States to Ireland and thereby reduce its global tax bill.

Corporate inversions have been in the IRS’s cross-hairs for some time. Recently, in November 2015, Treasury announced new rules intended to make corporate inversions more difficult. Those recent rules effectively prevent U.S. companies from escaping the U.S. tax system unless the American company merge with a foreign firm.

The Johnson Controls and Tyco merger appears to comply with the new rules. As a result of the merger, Johnson Controls shareholders will own about 56% of the resulting entity, and the shareholders of the Irish based Tyco will own the remaining 44%.

Until the U.S. offers a more competitive tax regime to multinational companies, we can expect to see companies exploring corporate inversions and similar tax strategies (e.g., offshore intellectual property) to reduce their global tax bill.

Written by: Doug McCullough, McCullough Sudan, PLLC, Partnerto play

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