Let me tell you a little story. There is a generic drug manufacturer outside Pittsburgh, PA called Mylan. This company is now facing a hostile takeover bid from an Israeli company Teva. It seems that Teva has started purchasing Mylan stock. They have already purchased 5% of Mylan’s outstanding stock.
Mylan is now asking the Federal Trade Commission (FTC) to look into the matter. You see, there is a provision that says when large stock purchases of U.S. companies are made, those purchases must be reviewed by anti-trust authorities. Sounds reasonable, we don’t want our companies to fall to hostile takeovers by foreigners.
But, there is a problem with the request from Mylan. You may not recognize the name of the company, but earlier this year, Mylan went ahead with the purchase of a small drug company in the Netherlands. Once that purchase was completed, Mylan announced that it was changing its corporate citizenship to the Netherlands.
This move from Mylan was so it could reduce its taxes on drugs sold overseas. In other words, it was a move directed by greed by corporate executives by to avoid paying their fair share of taxes to the country that they are part of. This procedure is called “inversion.”
Many members of Congress lashed out at the company for their inversion move. Almost all of the members of Congress who lashed out were Democrats. Republicans didn’t seem to have any difficulty with the process. However, that begs the question. Should a company who claims the U.S. as its corporate headquarters and still declares that the company is from the Netherlands be protected under the very anti-trust laws they themselves have looked to avoid?
In legal terms, Mylan probably has a defensible position. Since it claims that its principal office remains in Pennsylvania, which makes it a “U.S. issuer” of stock for federal anti-trust purposes. The optics of this is quite another matter. The company abandoned its U.S. Citizenship in order to pay less in federal taxes, yet they now want that same federal government to protect them.
I think Rep. Chris Van Hollen (R-MD) summed it up very nicely. He said:
“Mylan is trying to have its cake and eat it too. It is an intolerable abuse of a loophole when U.S. corporations pretend they are based overseas in order to get out of paying their fair share and duck their responsibilities to the United States. It’s just plain hypocrisy when one of those same inverted companies claims that it is actually a U.S. company because it needs the special protections U.S. law gives to American companies.”
The FTC should remind Mylan that when it chose to invert to avoid paying taxes, it gave up the privileges given to companies which remain committed to the United States. And Congress needs to act now to close the inversion loophole and fix our broken tax code to reward companies that locate and invest in America.”
At this writing, I have not found a single comment from any Republican on the matter. We all know how the Republicans, especially conservatives, hate government interference. In 2008 and 2009 they wanted to let the auto industry in America collapse. Are they willing to sit by and let Teva carry out its hostile takeover of Mylan?
Would they consider this a case of protecting a U.S. company or one of protecting a Netherlands company? Where is Mitt Romney saying let Mylan fail? Why isn’t Fox Business screaming about using tax payers money to defend a foreign company? As usual, when an instance of something created by these loopholes in our tax code that Republicans all seem to favor arise and makes a mess of things, they remain very quiet.
I am somewhat torn in this matter. On one hand, I don’t want anything to happen to the jobs that a hostile takeover could reap. On the other hand, why should our government use our laws to defend a company that no longer wants to be an American Company for lower taxes?
Van Hollen is right. This company abandoned us. We have seen other companies abandon us as well. There will be more companies following suit. Unless the tax codes are changed and these “inversion” loopholes are closed for good. How many companies will join Mylan in denouncing their company citizenship if the FTC helps Mylan in the fight?
What would stop other companies from denouncing their company citizenship in favor of lower taxes, knowing the government will still use U.S. laws to defend them? Part of paying your taxes is getting protection in these kinds of cases. If you abandon your citizenship so you don’t have to pay your taxes, why should we defend you?
That is the dilemma that our outdated tax code has given us. We are now faced with the dilemma of using tax payer dollars to basically protect a foreign company, or not. It will be interesting to see how the FTC responds. It will be even more interesting to see conservative responses to their decision.