Editorial: Mylan dodges taxes by going Dutch

Mylan Pharmaceuticals, headed by Sen. Joe Manchin’s daughter, will shift its national identity to Holland — which will let the West Virginia-born corporation elude millions in U.S. taxes, while it continues operating from its Pittsburgh headquarters.

Business writers are praising the crafty Mylan ploy, calling it a “spinversion.” A decade ago, Congress attempted to outlaw “inversions,” in which U.S. firms shift their identity abroad to duck American taxes. However, many U.S. companies found loopholes by merging with foreign firms, so inversions continue. The Mylan plan involves a new twist.

Through a $5.3 billion stock swap, Mylan will buy the generic drug business of Abbott Laboratories, and both will form a new parent firm in the Netherlands, thus ducking America’s 35 percent corporate income tax. Bloomberg News reported:

“Setting up in the Netherlands will drop Mylan’s tax rate to less than 21 percent in the first year, subsequently declining to the high teens. The company will be run by Mylan’s executive team from Pittsburgh, where Mylan’s headquarters are now. Since January 2012, 19 U.S. companies have sought or completed purchases of companies overseas and changed their addresses to gain lower tax rates, a move known as inversion. The Mylan deal is among the first of the so-called spinversions, when a portion of a company is joined with another in a transaction that allows both to relocate.”

Mylan’s CEO in Pittsburgh, Heather Bresch, told Bloomberg: “We were the last Mohican standing. We’re the last in our sector to have announced an inversion or to be domiciled outside the United States.”

(Bresch, you may recall, was involved in a 2008 upheaval that forced the resignation of West Virginia University President Mike Garrison. While Bresch’s father was governor, the flagship state university awarded the daughter a master’s degree that wasn’t properly earned. Discovery of it caused months of public storm.)

When U.S. firms funnel their profits to foreign headquarters to elude U.S. taxes, they cannot bring the money back home without paying America’s 35 percent rate. So they usually invest it overseas, creating foreign jobs and boosting foreign prosperity. America suffers an estimated $20 billion annual loss from this process.

We agree with Sen. Ron Wyden, D-Ore., who warned:

“If you have American companies that have been major employers, employers that pay good wages, saying that they’re just gonna pack up and go somewhere else so they can have a lower tax rate, that has very ominous implications for our country.”

Rep. Rosa DeLauro, D-Conn., added: “It’s all about tax-dodging and being a tax cheat.... It is un-American.”

U.S. Treasury Secretary Jack Lew called for “a new sense of economic patriotism” and declared: “We should prevent companies from effectively renouncing their citizenship to get out of paying taxes.”

Maybe Congress can revise U.S. laws again to curtail such inversions and spinversions. It would be remarkable if West Virginia’s Sen. Joe Manchin, known as a brave maverick, helped repair problems such as the one involving his daughter’s firm. We hope he does so.

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