Global Mergers Seen as Increasingly Popular Tax Avoidance Strategy for U.S. Companies

By Joe Vladeck

Applied Materials, a California-based manufacturer of equipment for producing semiconductors, recently announced its acquisition of competitor Tokyo Electron. Following that acquisition the newly-wed companies took an increasingly popular step: They eloped to the Netherlands.  The reason?  Tax savings.

Regulations have made it more difficult for American companies to reincorporate in infamous tax shelters such as Bermuda.  As a consequence, U.S. companies like Applied Materials are increasingly acquiring smaller competitors abroad and then using the opportunity to re-incorporate in foreign jurisdictions.  Applied Materials estimates that will reduce its tax burden by 5 percent, or approximately $100 million annually. 

This "inversion" technique is growing in popularity. Of the 50 corporate "inversions," 20 have occurred in the past 18 months.  Dealbook has details on the practice.