Less than a week after the Obama administration introduced new rules to curb the flood of U.S. companies moving overseas to lower their tax bill, a California telecommunications firm is about to test the waters.
San Jose, Calif.-based Polycom announced Friday that it was being purchased by its Canadian competitor Mitel Networks in a $2 billion deal. The merger has many of the classic signs of an “inversion,” in which a U.S. company attempts to lower its tax rate by moving its headquarters out of the country.
The deal, for example, is structured as a reverse merger in which the smaller Mitel, which is valued by the stock market at about $1 billion, is buying the bigger U.S. company, Polycom. Polycom has a market capitalization of about $1.7 billion. Also, Polycom’s shareholders would own the majority of the new company, 60 percent.
The new company would be based in Ottawa, where the tax rate is lower.
But Polycom and Mitel officials argue the merger isn’t a tax-driven deal. “This isn’t an inversion. This is a cross-border M&A,” Steve Spooner, the financial chief of Mitel, told The Wall Street Journal.
Company officials did not immediately return a call from The Washington Post.
“I understand why they wouldn’t want to call it that but this meets the technical requirements of an inversion,” said Robert Willens, an independent tax attorney. “It is kind of silly that they’re saying it’s not.”
The deal comes just a week after President Barack Obama called inversions one of the most “insidious tax loopholes out there” and the Treasury Department adopted new rules to curb the practice.
The department’s rules forced pharmaceutical giant Pfizer to call off a $160 billion merger with Dublin-based Allergan last week. But tax experts have said that inversions will likely continue until Congress lowers the country’s 35 percent corporate tax rate, which is among the highest in the developed world.
