Considering an inversion deal? Better get it on the books before 2015

 

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US bankers and lawyers are inciting a sense of urgency among corporate clients to get tax-reducing acquisitions of offshore companies signed before the end of this year, now that a slew of recent so-called tax-inversion trades has set off alarms in Congress.

 

Heated debates about how to limit such acquisitions broke out last week, as senators reacted during a hearing to the recent slew of deals announced by Mylan, AbbVie, Salix Pharmaceuticals and Medtronic.

The Obama administration has proposed legislation that would severely restrict the ability of US companies to invert, and while the effective date is January 1 2015, US Treasury Secretary Jack Lew has called for the law to be made retroactive to May 2014.

Last week US Senate Finance Committee chairman Ron Wyden further fuelled the debate by accusing bankers of being in an “inversion feeding frenzy” and alluded to as many as 25 more possible tax-motivated M&A deals in the pipeline.

Threats of retroactivity have led bankers privately to urge corporates to get deals at least signed before the end of December this year.

“We are certainly encouraging clients not to waste any time if they are considering deals that include an inversion angle,” said a global head of mergers and acquisitions at one of the world’s largest banks.

According to Bernie Pistillo, a partner at Morrison & Foerster, a tax deal is unlikely to be passed until 2016, after the mid-term elections, and to the extent that there is anything retroactive, it would be back to 2015, not 2014.

“There seems to be a sense that if a deal is signed before the end of this year then it has less chance of being caught by any retroactive law,” said Pistillo.