The newspapers are full of stories about tax cheats of one kind or another, and recently about acquisitions of UK listed businesses in “tax inversion” deals proposed by US businesses.
The tax inversion works by reducing the tax payable by the US business. Through the acquisition of the UK business, their headquarters moves out of the US and so do their taxes.
I’ve noted before that acquisitions are dangerous territory. The newspapers only like to report the bad news, so there is a much distorted picture from the press but serious studies have shown that acquisitions can not only damage your wealth, they can easily cost a CEO his or her job.
There are many possible causes for failure when buying a business, but in my view you can frequently trace the problem back to the original strategy and unrealistic expectations.
What is worrying me about these tax inversion deals is the possibility or even probability that the main benefit flowing from the deal will be the reduced tax burden on the combined entity.
One of my mantras for the owner manager, when we are planning for sale or when we are considering an offer, is:
Don’t let the tax tail wag the dog
By all means look to minimise (legally, of course) the tax you are paying on a transaction, but let us not lose sight of the real objective!