retail news in context, analysis with attitude

The New York Times this morning reports that the Obama administration is calling for the US Congress "to strip away tax advantages that have encouraged a rush of mergers and acquisitions that give companies an overseas base while they maintain their presence in the United States."

The practice, called "inversion," has moved into the spotlight recently with reports that Walgreen could acquire the shares in British chain Boots that it does not already own and then move its corporate headquarters to save on taxes.

In a speech yesterday, President Barack Obama accused such companies of essentially "renouncing their American citizenship by 'cherry-picking' the nation’s tax laws at the expense of ordinary taxpayers," according to the Times. “These companies are cherry-picking the rules, and it damages the country’s finances,” Mr. Obama said. “It adds to the deficit. It sticks you with the tab to make up for what they are stashing offshore.”

The Times writes that "there is growing consensus on Capitol Hill that the rush of inversions should be stopped. Lawmakers from both parties worry that the more companies move their headquarters to countries like Ireland and the Netherlands, the more the American tax base is being compromised. Democrats and Republicans seem to agree that a short-term fix is needed, but there is partisan disagreement about what anti-inversion legislation should look like."

One of the sticking points is whether any legislation would be retroactive - essentially forcing companies that have engaged in the practice to unwind their deals. Democrats think that the law should allow for this, but Republicans disagree. The story notes that the call for legislation means that the investment banking community is pushing US companies to make such deals now, betting that even if a bill is passed, retroactivity will not be a part of it.
KC's View:
First of all, I tend to agree with the notion that you can't make this kind of legislation retroactive. That strikes me as an untenable approach to legislating and doing business. All one can do is play by the rules that are in place at any given moment, and it isn;t fair to, when you change the rules, also punish people for not obeying rules that did not exist. Fair is fair.

When it comes to the inversion debate, here's what I'd like to see - someone needs to come up with a simple chart that explains where corporate taxes go, and why it is good business for someone to stay here rather than go abroad. I'm willing to accept on faith the idea that the US is a better place to do business than anywhere else in the world, in terms of having a culture of innovation, greater levels of freedom, more access to capital, etc… But markets don't do much on faith…and so someone has to make this case persuasively.