WASHINGTON — The Obama administration’s tougher rules on offshore corporate inversions had an immediate effect Tuesday, pushing down the stock prices of companies considering such moves.
But the highly technical changes to the tax code did not appear to go far enough to derail the controversial deals, in which U.S. companies avoid higher tax rates by buying smaller foreign firms and moving their headquarters abroad.
The measures unveiled Monday by the Treasury Department would make it less profitable for American companies to re-incorporate overseas, largely by limiting the ability to shelter foreign earnings from U.S. taxes, analysts said. Still, there probably are enough potential tax savings remaining to pursue those moves.
“It changes the economics of the deals, but it does not seem to rise to the level of where you have made them un-economical,” said Edward Mills, a policy analyst with FBR Capital Markets.
Burger King Worldwide Inc. and Canadian coffee-and-doughnut chain Tim Hortons said Tuesday that they would go ahead with their planned deal, the highest-profile inversion so far.
Miami-based Burger King drew the ire of many consumers and lawmakers when it announced last month that it would acquire Tim Hortons and re-incorporate in lower-tax Canada. Burger King is trying to boost its breakfast offerings, a fast-growing segment of the restaurant industry.
“As we’ve said previously, this deal has always been driven by long-term growth and not by tax benefits,” the companies said in a joint statement.
Meanwhile, medical device maker Medtronic Inc., which announced in June that it would acquire European rival Covidien and re-incorporate in low-tax Ireland, said Tuesday that it was studying the new rules. The deal has a provision allowing either company to back out if tax laws change.
Shares in those companies and other potential inversion candidates were down Tuesday.
The declines were part of a broader market slide after U.S. airstrikes in Syria and poor economic news from Europe. The Dow Jones industrial average fell 116.81 points, or about 0.7 percent, to 17,055.87. The S&P 500 index lost 11.52 points, or 0.6 percent, to 1,982.77, and the Nasdaq composite index was off 19 points, or about 0.4 percent, to 4508.69.
Burger King shares dropped about 2.7 percent, Medtronic was off 2.9 percent and Covidien fell about 2.5 percent. Tim Hortons was down only slightly.
Shares in British pharmaceutical company AstraZeneca were down about 5 percent. It has been rumored to be an acquisition target of New York-based Pfizer Inc., which could reduce its taxes after a deal by reincorporating in Britain. Pfizer was off about 0.4 percent.
“There are still benefits to be had from inverting,” said Ryan Dudley, an international tax expert at accounting and advising firm Friedman. “It’s just a question of whether they now outweigh the costs.”
The calculation will change for each potential transaction, he said.
The 35 percent corporate tax rate in the U.S. is the highest of any major developed economy, and businesses say that’s what’s driving the recent wave of inversions.
