Tag: tax avoidance

Minnesota Retirement Board Won’t Support Corporate Inversion of Medtronic

voting

The Minnesota State Board of Investment, the entity that manages assets for the state’s retirement systems, decided on Friday that it will not vote in favor of Medtronic’s acquisition Covidien.

Medtronic is Minnesota’s largest medical technology company, and Covidien is a medical supplier based in Dublin.

The retirement board has a say in the decision because it is a shareholder in both companies.

More from the Star-Tribune:

A four-member subcommittee of the state Board of Investment decided Friday morning not to vote in favor of Medtronic’s acquisition of Dublin-based healthcare supplier Covidien during shareholder voting next week. Critics on the committee said they were concerned that the stock-and-cash transaction would help Fridley-based Medtronic avoid taxes while providing “preferential” tax perks to executives.

Medtronic and Covidien shareholders will vote Tuesday on whether to approve the deal. The state retirement board can participate because it controls 117,130 Medtronic shares and 427,825 Covidien shares through its various retirement and trust funds. Board rules say its staff needs committee approval before casting proxy votes in controversial cases.

The Medtronic deal has proved controversial because it is structured as a corporate inversion that will move the combined company’s legal address being in Ireland, while leaving “operational” headquarters in Minnesota. Such deals have been criticized for helping multinational companies avoid domestic taxes.

Medtronic management is also urging shareholders to support the company paying an estimated $73 million to cover special excise taxes on executive stock options that will come due as part of the inversion. Board members said there was clear precedent to vote against deals that contain an executive “golden parachute.”

The Minnesota State Board of Investment manages $78.2 billion in assets.

 

Photo by Keith Ivey via Flickr CC License

Report: Canada Pension Board Maintains Two Dozen Shell Companies To Avoid Taxes

Canada blank mapCanada’s Public Sector Pension Investment Board (PSP), the entity that manages pension assets for the Public Service Pension Plan, the Canadian Forces Pension system and others, maintains a complex arrangement of offshore companies for the purpose of avoiding taxes on investments in Europe.

CBC reported the story Wednesday:

The federal agency that invests civil servants’ pensions set up a complex scheme of European shell companies and exploited loopholes that helped it avoid paying foreign taxes — a move that could undermine Canada’s standing internationally as its allies try to mount a crackdown on corporate tax avoidance.

The arrangement involved two dozen entities, half of them based in the financial secrecy haven of Luxembourg, and all of them set up in order to invest money in real estate in Berlin by a Crown corporation called the Public Sector Pension Investment Board.

The blueprint for the tax-avoidance plan was obtained by the Washington-based International Consortium of Investigative Journalists and shared with CBC News as part of a larger leak of records exposing hundreds of corporate offshore schemes set up to capitalize on advantageous tax and secrecy rules in Luxembourg.

[…]

While the Canadian government corporation’s transactions were not illegal, a senior German tax official who reviewed them said the pension investment board had used “a very aggressive way to avoid taxes.”

“The only goal is to avoid taxes,” Juergen Kentenich, director of the regional tax office in Trier, Germany, said of the tangle of Luxembourg companies.

The scheme is legal, but was used to avoid paying taxes on German real estate owned by PSP. CBC reports that the fund successfully managed to avoid paying $20 million in German taxes:

The documents — which consist of a tax plan devised for the pension board by global accounting firm PricewaterhouseCoopers — show that the pension fund acquired 69 mixed residential and commercial buildings, totalling nearly 4,500 suites and units, in Berlin in 2008.

CBC News has learned the buildings were acquired for close to $390 million. But as a result of the way the transaction was structured, the pension investment board would have avoided paying $20 million in German taxes.

The purchase exploited a loophole in Germany’s land transfer tax, which is normally levied on any entity that acquires 95 per cent or more of the shares of a real-estate holding company.

Instead, the pension board bought a direct 94.4 per cent interest in a number of Luxembourg-based property holding companies, and then obtained an indirect interest by taking a large majority position in entities that held the remaining 5.6 per cent.

The board thus obtained a 96.4 per cent overall stake in the Berlin buildings, but the German loophole meant the indirect holdings weren’t counted toward the real-estate transfer tax — so it didn’t pay any.

The Public Sector Pension Investment Board manages $93.7 billion in assets.

Pension Funds Stay Silent on Corporate Tax Avoidance

Monopoly Board income tax

Pension funds are no strangers to using their clout to push for changes within the companies they invest in—in the last few years, dozens of funds have called for more sustainable business practices from fossil fuel-oriented companies and advocated new safety guidelines for gun manufacturers.

But on one issue, public pension funds are remaining silent. The issue: corporate tax avoidance. As reported by the New York Times:

In the outcry about the recent merger mania to take advantage of the tax avoidance transactions known as inversions, certain key players have been notably silent: public pension funds.

Many of the nation’s largest public pension funds — managing trillions of dollars on behalf of police and fire departments, teachers and others — have major stakes in American companies that are seeking to renounce their corporate citizenship in order to lower their tax bill.

While politicians have criticized these types of deals — President Obama has called them “wrong” and he is examining ways to end the practice — public pension funds don’t appear to be using their influence as major shareholders to encourage corporations to stay put.

Tax avoidance made headlines again last week when Burger King announced it was buying Tim Horton’s, a move which would make Burger King a “citizen” of Canada for tax purposes.

Pension funds didn’t speak up. But why? The NY Times speculates that investment performance has a lot to do with it:

Public pension funds may be so meek on the issue of inversions because they are conflicted. On one side, the funds say they care about the long term and the implications for their state. Calpers’s “Investment Beliefs” policy states that the pension system should “consider the impact of its actions on future generations of members and taxpayers,” yet most pension funds are underfunded and, frankly, desperate to show investment returns. Mergers for tax inversion can prop up share prices of the acquirers and clearly help pension funds, at least in the short term, show improved performance.

CalPERS is usually one of the first funds to use “activist investing” tactics to push for changes in the companies they invest in. But the fund has remained unusually quiet. The fund talked to the NY Times and gave an explanation:

The California Public Employees’ Retirement System, the nation’s largest public pension fund and typically one of the most vocal, has remained silent.

“We don’t have a view on this from an investor standpoint — we’re globally invested, as you know, and appreciate that tax reform is a government role,” Anne Simpson, Calpers’s senior portfolio manager and director of global governance, told me. “We do expect companies to act with integrity, whatever the issue at hand — that goes without saying. We also want to see a focus on the long term.”

When I pressed for more, her spokesman wrote to me, “We’re going to have to take a pass on this one.”

Mark Cuban recently stated that he would sell the stock of any company that moved out of the United States to avoid taxes.

 

Photo by TaxRebate.org.uk