When research firm IHS announced earlier this week that it would be leaving its longtime home in Colorado and moving to London as part of a merger, company executives emphasized that the deal would reduce costs and help it reach a bigger audience.
One potential benefit the executives didn’t mention involves $747 million in foreign profits that IHS has left overseas instead of bringing back to the United States, where it would face a hefty tax bill.
By moving its headquarters to London, IHS will gain easier access to those funds without paying the United States’ high corporate tax rate. It could also avoid an up to $260 million U.S. tax bill, said Matt Gardner, executive director of the Institute on Taxation and Economic Policy.
IHS is just the latest U.S. firm to be involved in a so-called inversion, in which U.S. companies are bought by or merge with foreign firms to reduce U.S. corporate tax burdens. IHS is merging with London-based Markit and has said the tax rate of the new combined company, IHS Markit, will be in the low-to-mid-20 percent range — far lower than the 35 percent corporate tax rate in the United States.
“IHS already appears to be aggressively shifting its profits offshore,” Gardner said. “Taking the additional step of inverting would make it easier for the company to ensure its already offshored profits will never be subject to U.S. taxes.”
The company declined to comment on its foreign profits but said in a statement Monday that it will continue to have a large presence in the United States. “We have adopted a tax structure we think is most appropriate for the combined company,” the company said in a statement.
U.S. companies have been stashing an increasing amount of profits overseas, frustrating Congress and the Obama administration, which has struggled and failed to stem the tide. The amount of unrepatriated foreign profits reached $2.4 trillion by end of 2015, according to Citizens for Tax Justice, allowing U.S.-based companies to avoid up to $695 billion in taxes. That is up from about $2.2 trillion at the end of 2014.
IHS’s unrepatriated profits have risen from about $150 million in 2010 to $747 million at the end of last year, according to its Securities and Exchange Commission filings.
“If we were to repatriate those earnings, in the form of dividends or otherwise, we would be subject to … U.S. income taxes,” the company said in the SEC filing. “However, our intent is to permanently reinvest these funds outside of the U.S.”
IHS’s foreign profits are dwarfed by companies such as Pfizer, which has about $148 billion in profits it earned overseas and can’t bring back to the United States without taking a tax hit. The pharmaceutical giant announced in November that it would merge with Botox-maker Allergan and move its headquarters to Ireland, potentially allowing it to avoid a $35 billion tax hit to gain access to those foreign profits.