Democratic presidential candidates rip Johnson Controls tax inversion

Company to save $150 million in annual property taxes with HQ in Ireland

Hilary Clinton will debate the other Democratic candidates in Milwaukee Feb. 11. / JStone

The leading Democratic candidates for president had harsh words for the deal announced Monday that Glendale-based Johnson Controls would acquire Tyco and that the combined company’s global headquarters and legal domicile will be in Cork, Ireland in a tax inversion maneuver that the company says will save it $150 million annually in federal income taxes.

The Johnson Controls-Tyco deal is at least the 12th inversion pursued by American companies since 2014, according to the Wall Street Journal. In a report issued Monday, the nonpartisan Congressional Budget Office said it expects corporate tax revenue as a percentage of the economy to fall to 1.6 percent in 2026, or $434 billion, from 1.8 percent in 2016, or $327 billion. The CBO said it expects the “increasing adoption” of tax-minimizing strategies like inversions “will result in progressively larger reductions in corporate tax receipts over the next 10 years,” according to a Marketwatch report.

Hillary Clinton called the planned inversion by Johnson Controls and Tyco, which is based in Ireland, “outrageous.”

Hilary Clinton will debate the other Democratic candidates in Milwaukee Feb. 11. / JStone
Clinton

“These efforts to shirk U.S. tax obligations leave American taxpayers holding the bag while corporations juice more revenues and profits,” Clinton said in a statement. “I have a detailed and targeted plan to immediately put a stop to inversions and invest in the U.S., block deals like Johnson Controls and Tyco, and place an ‘exit tax’ on corporations that leave the country to lower their tax bill.”

The planned merger between Johnson Controls and Tyco International “would be a disaster for American taxpayers,” Sen. Bernie Sanders said in a statement. “Profitable companies that have received corporate welfare from American taxpayers should not be allowed to renounce their U.S. citizenship to avoid paying U.S. taxes. These corporate inversions must stop. My message to these corporate deserters is simple: You can’t be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government. If you want the advantages of being an American company then you can’t run away from America to avoid paying taxes.”

Sen. Bernie Sanders
Sanders

A spokesman for Johnson Controls today downplayed the shift of the company’s global headquarters to Ireland.

“This is not about the foreign domicile, this is about creating a global leader that will deliver best in class products and services and create enhanced revenue growth and return for our shareholders,” said Johnson Controls spokesman Fraser Engerman. “That’s what this merger is all about.”

The North American operational headquarters for the combined company, which will be called Johnson Controls plc, will be located in the Milwaukee area, where the company currently has about 3,400 employees. Johnson Controls is currently based in Glendale.

U.S. Sen. Ron Johnson, R-Oshkosh, said the Johnson Controls acquisition of Tyco, and the announced plans to place the combined company’s global headquarters in Ireland for tax purposes, shows that major changes are needed to the U.S. tax code.

“I appreciate the fact that Johnson Controls will maintain its operational headquarters in Wisconsin after it acquires Tyco,” Johnson said. “I am disappointed, but not surprised, that it is doing what Tyco did a few years ago and taking Ireland as its domicile for tax purposes.

“Ireland’s top corporate tax rate is 12.5 percent. The top U.S. corporate rate is 35 percent. That’s the developed world’s highest rate, and Washington levies it even on income that companies earn in other countries. By making Ireland its tax home, Johnson Controls will still pay U.S. and Wisconsin taxes on profits it earns in America, but its overseas earnings will be subject to the far more competitive Irish tax law.

“As one of my Democratic colleagues said during a hearing on exactly this topic, ‘It’s just math.’ America needs to get its math right by scrapping our current tax code and replacing it with a very simple and globally competitive one. This will help American businesses, the Americans they employ, the Americans whose retirement saving are invested in those companies, and all the American families struggling in the weakest economic recovery since World War II. Getting the math right means more growth, more prosperity for all Americans — and more federal revenue.”

The Treasury Department has issued two rounds of guidance aimed at reducing the tax benefits of inversions, but Secretary Jack Lew has said that only Congress can halt the deals.

“U.S. businesses are continuing to defect to Ireland, stranding honest taxpayers,” said Senate Finance Committee Ranking Member Ron Wyden, D-Ore. “Congress needs to act now.”

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Andrew is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, he is a lifelong resident of the state. He lives in Muskego with his wife, Seng, their son, Zach, and their dog, Hokey. He is an avid sports fan and is a member of the Muskego Athletic Association board of directors.

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