Monsanto’s Proposed Tax Inversion Plan

U.S.-based agrochemical giant Monsanto Co. is currently negotiating a $45 billion buyout proposal of rival Syngenta as a tax inversion strategy to relocate to the UK, according to the Financial Times.

U.S.-based agrochemical giant Monsanto Co. is currently negotiating a $45 billion buyout proposal of rival Syngenta as a tax inversion strategy to relocate to the UK, according to the Financial Times. If Monsanto's proposed tax inversion plan is accepted, this would mark the largest tax inversion in U.S. history with estimated annual savings close to $500 million.

If Monsanto's proposed tax inversion plan is accepted, this would mark the largest tax inversion in U.S. history with estimated annual savings close to $500 million.

Monsanto's proposed tax inversion plan seeks tax savings.

According to Monsanto CEO and Chairman Hugh Grant, the merger is designed to encompass the two corporations into a global agribusiness enterprise to expand geographical outreach. However, the tax inversion acquisition would effectively reduce Monsanto's tax rate from 29 percent to 15 percent, the WSJ reported. Britain is an ideal location for overseas subsidiaries to set up headquarters because of its 20 percent tax rate, which includes additional tax incentives for foreign-based entities.

The impact on global agribusiness

This merger would become the largest ever agribusiness takeover, which would effectively monopolize the global seeds and chemicals markets, the WSJ report noted. Monsanto and Syngenta combined for $57 billion in pesticide sales alone in 2014, with a 30 percent market share on pesticides, and another 45 percent market share for seeds. Together, the two companies would generate $600 million in new revenue, increasing cash-earnings-per-share by over 16 percent from the tax savings and benefits structure in Britain, according to a report in Bloomberg Business.
Ultimately, farmers would be most affected by the deal because it could significantly change all agribusiness sectors.  According to John Hansen, President of the Nebraska Farmers Union and a prominent board member of the National Farmers Union, the deal would eliminate competition.

"When you have that much market power, there's too much money to be made using your market power to push the company's interests forward," Hansen said.

Criticism from the US government

President Obama has been an outspoken critic of tax inversions because these strategies manipulate the tax system and diminish the U.S. tax base. Several other Congressman have been critical of tax inversions as well, including Senator Richard Durbin who argued that rules should be enacted to block these strategies.
"It's clear that Monsanto – a company that has prospered and expanded in large part due to U.S. taxpayer-funded programs and services – intends to reincorporate overseas as part of its proposed acquisition of Syngenta in order to avoid paying U.S. taxes," he argued. "Hundreds of millions of dollars that could be invested in the infrastructure, education and research that companies rely on will be lost if Monsanto is allowed to go through with this corporate inversion scheme."

In fact, several Democrats have proposed an overhaul of the federal tax system where corporations like Monsanto would continue to pay U.S. tax rates overseas. According to USA Today, with involvement from U.S. politicians, the floodgates have opened to eliminate the tax inversion loophole altogether.

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James F. McDonough, Jr. concentrates on wealth preservation and estate planning for high net worth individuals, closely held business matters and ownership succession, estate administration and income tax planning. He worked for three years for the public accounting firm, then known as Touche Ross, where he obtained his license as a Certified Public Accountant in 1983. In 1984, he was employed as a tax attorney by Union Camp Corporation where he engaged in planning for corporate income deferred compensation, qualified plan and tax-free exchanges. In 1986, Mr. McDonough was employed as Tax Manager for Monroe Systems For Business, Inc. Thereafter, he was employed as a tax attorney for five years where he engaged in corporate and estate tax planning and estate administration and litigation. For more information, please visit James McDonough's full biography at Scarinci Hollenbeck

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