David Rosenbloom Quoted in Bloomberg, Eaton Expects $160 Million Tax Savings From Ireland Move

May 21, 2012, Bloomberg
Excerpt taken from the article.

Eaton Corp. (ETN)'s decision to buy Cooper Industries Plc (CBE) and place the combined company's headquarters in Cooper's Ireland instead of Eaton's Cleveland home will save $160 million a year in taxes by 2016, the companies said.

The move, announced today, underscores the tax disincentives for multinational companies organized in the U.S., said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington.

"The U.S. tax system just invites this," said Hufbauer, a former deputy assistant secretary at the Treasury Department. "Any tax adviser in his right mind for this kind of thing would suggest: Locate the new company abroad."

The U.S. has the industrialized world's highest statutory corporate tax rate at 35 percent. U.S.-based companies must pay taxes when they repatriate profits earned outside the country. Ireland has a top corporate tax rate of 12.5 percent.

Cooper, which makes electrical-distribution equipment, was a U.S. company before a 2002 transactions moved the headquarters to Bermuda. In 2009, the company moved from Bermuda to Ireland.

The moves by Cooper and other companies such as Ingersoll-Rand Plc prompted Congress to make it more difficult to carry out corporate inversions in which a U.S. company ends up operating as part of a foreign-owned company. In 2002, Senator Charles Grassley of Iowa, then the top Republican on the Finance Committee, called such transactions immoral.

The Obama administration has proposed preventing companies from deducting the cost of moving operations outside this country. Congress hasn't acted on that idea.

Based on 2011 sales, the combined companies in the deal announced today had 49 percent of their sales in the U.S.

Eaton probably will borrow in the U.S. to take advantage of interest deductions against the 35 percent rate on its U.S. earnings, said David Rosenbloom, an international tax attorney at Caplin & Drysdale in Washington.

"Congress seems to be just peachy keen with that," he said.

Click here to read the rest of the article on Eaton's move to Ireland.

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