Dive Brief:
- Under a 2004 law, when companies shift domicile for tax-related reasons, they incur a special excise tax representing 15% of the value of any restricted stock or unexercised tax options.
- PA-based generic drugmaker Mylan Inc has made a deal to purchase European assets from Abbott Laboratories and move its legal address to the Netherlands. Because this is considered a tax inversion, the company's top execs are being charged $20.5 million in excise taxes, with Mylan picking up the tab.
- Mylan will pay top execs $32.5 million earlier than planned to help them avoid extra taxes and they will also pay an additional $20.5 million for the penalties.
Dive Insight:
The 2004 law that taxes corporate moves which are considered tax inversion-related often negatively affects employees. In this case, the Mylan board decided to take on the burden for the top executives at the company, aruging that they provide crucial value to the firm and should not be penalized for a collective business decision.
While Mylan will still have a Pennsylvania location, the new address legally will be in the Netherlands, which will essentially lower its corporate tax rate from 25% to the high teens.