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Tax Inversions: Why Are They So Popular?

Recently, Medtronic (NYSE: MDT  ) and Covidien (NYSE: COV  ) became the latest pair of companies to consider a high-value merger. One of the big motivations for these international mergers is the opportunity to do a tax inversion. But what exactly is a tax inversion, and why have they become so popular?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at tax inversions and the big rise in their popularity. Dan notes that U.S. corporate tax rates are high, with rates of 35% being much higher than in other areas. Tax inversions allow companies to shift their tax home to a foreign country where taxes are lower, and estimates suggest that the new wave of tax inversions costs the IRS about $2 billion annually in lost taxes. Dan points out that Congress has made it harder for companies to do tax inversions, but the limitations on minimum size for international target companies has led to megamerger proposals like Pfizer (NYSE: PFE  ) and its now-ended bid to buy AstraZeneca (NYSE: AZN  ) . As long as taxes in the U.S. remain high, there'll be plenty of incentive to do tax inversions.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2014, at 4:42 PM, cjaeger wrote:

    So what are the tax implications to an individual investor that has been doing a long-term buy-hold with MDT.

    I advise someone who has had a > 5x appreciation in stock prive over a decade by holding MDT, and they are wondering what is in store as MDT undergoes an inversion.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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11/21/2014 4:06 PM
AZN $74.56 Up +0.35 +0.47%
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