Corporations screwing their employees.......

[Hawk in SEC Country]

time and time we hear this story over and over.

I just got off the phone with a good friend who works for Medtronic in Minneapolis. Apparently the company acquired another company called Covidien in Ireland....avoided paying taxes on the transaction.....and in the process, have shifted the tax burden to their shareholders..........which include a lot of current and former employees.
My friend has received a tax bill of $10K........she has friends who got a bill for $75K+.......

Can they sue in a class action? Anyone have any experience in this, or any knowledge of counter measures that can be taken?

 

[theVoicefromtheTomb]

time and time we hear this story over and over.

I just got off the phone with a good friend who works for Medtronic in Minneapolis. Apparently the company acquired another company called Covidien in Ireland....avoided paying taxes on the transaction.....and in the process, have shifted the tax burden to their shareholders..........which include a lot of current and former employees.
My friend has received a tax bill of $10K........she has friends who got a bill for $75K+.......

Can they sue in a class action? Anyone have any experience in this, or any knowledge of counter measures that can be taken?

Would those be capital gains taxes?

 

[86Hawkeye]

time and time we hear this story over and over.

I just got off the phone with a good friend who works for Medtronic in Minneapolis. Apparently the company acquired another company called Covidien in Ireland....avoided paying taxes on the transaction.....and in the process, have shifted the tax burden to their shareholders..........which include a lot of current and former employees.
My friend has received a tax bill of $10K........she has friends who got a bill for $75K+.......

Can they sue in a class action? Anyone have any experience in this, or any knowledge of counter measures that can be taken?

Yeah, when these inversions occur, the acquiring company is actually treated like the acquired company. The Irish company gives X shares for every share of the US company, and the shareholder (or in your friend's case, shareholder/optionee) has a hefty tax bill on the "tax gain", even though he's never received cash in the transaction. He'll end up having to liquidate some of his holdings just to cover the tax bill.

This almost happened to me last year, but the deal ended up being called off.

 

[Raglefant]

Would those be capital gains taxes?

They are acquiring a company and have taxes that they are passing to shareholders? You're not getting the facts I think. That makes no sense.

 

[86Hawkeye]

Would those be capital gains taxes?

Depends on how long the holder has held the shares. If < one year, then ordinary income.

 

[Raglefant]

Yeah, when these inversions occur, the acquiring company is actually treated like the acquired company. The Irish company gives X shares for every share of the US company, and the shareholder (or in your friend's case, shareholder/optionee) has a hefty tax bill on the "tax gain", even though he's never received cash in the transaction. He'll end up having to liquidate some of his holdings just to cover the tax bill.

This almost happened to me last year, but the deal ended up being called off.

So as a shareholder, he is being given additional shares? If the value of his stock went up he wouldn't have to pay tax...

 

[86Hawkeye]

They are acquiring a company and have taxes that they are passing to shareholders? You're not getting the facts I think. That makes no sense.

No. He's got it right. See my 1st post above.

 

[86Hawkeye]

So as a shareholder, he is being given additional shares? If the value of his stock went up he wouldn't have to pay tax...

Right. That's what sucks about it for the shareholder. Since his company has essentially "sold" it's shares to the Irish company (for shares of the Irish company), he gets taxed on the paper gain.

Thus the American company needs to be able to justify to the shareholders that the after tax benefits from the deal will make the new stock appreciate such that it makes the initial tax hit worth it.

 

[Hawk in SEC Country]

Depends on how long the holder has held the shares. If < one year, then ordinary income.

17 years

 

[N_fuego]

• I'm kind of confused. Have the employee / shareholders been getting additional income since they became shareholders? Capital gains?

 

[Hawk in SEC Country]

They are acquiring a company and have taxes that they are passing to shareholders? You're not getting the facts I think. That makes no sense.

http://www.thestreet.com/story/1302...dling-shareholders-with-a-hefty-tax-bill.html

 

[Raglefant]

Right. That's what sucks about it for the shareholder. Since his company has essentially "sold" it's shares to the Irish company (for shares of the Irish company), he gets taxed on the paper gain.

Thus the American company needs to be able to justify to the shareholders that the after tax benefits from the deal will make the new stock appreciate such that it makes the tax hit worth it.

Wow. So he owns new shares, which would necessarily mean <1 yr meaning ordinary income. Ouch... unless this move gives him something worth exponentially more either short or long term... what's the motivation for the US based company to do this?

 

[86Hawkeye]

17 years

Long term capital gain (but you knew that)

 

[N_fuego]

I'm starting to remember hearing about this from last year. It sounded really shady back then, and now it seems worse.

 

[86Hawkeye]

Wow. So he owns new shares, which would necessarily mean <1 yr meaning ordinary income. Ouch... unless this move gives him something worth exponentially more either short or long term... what's the motivation for the US based company to do this?

Almost got it.

The tax gain will be based on how long he/she held the original shares, so it could be a long term capital gain.

The motivation is a significant reduction in their tax bill (and increase in after tax income). The idea is that the company's income then grows more, which in turn makes the stock go higher (than it would've been).

 

[86Hawkeye]

I'm starting to remember hearing about this from last year. It sounded really shady back then, and now it seems worse.

It's not shady. It's really a symptom of the need for the US to revamp it's corporate tax system........AND put some sensible restrictions in place.

 

[86Hawkeye]

• I'm kind of confused. Have the employee / shareholders been getting additional income since they became shareholders? Capital gains?

Not really. Certainly not in cash.

They've received x number of Irish company shares which are deemed to be more valuable than the US company shares they had....thus the tax liability.

 

[Hawk in SEC Country]

http://www.startribune.com/medtronic-deal-could-sting-for-long-time-shareholders/265750841/

 

[Hawk in SEC Country]

The company made sure that executives got $63 million of offset their tax burden......shareholders got stuck with the whole load.

 

[Hawk in SEC Country]

Almost got it.

The tax gain will be based on how long he/she held the original shares, so it could be a long term capital gain.

The motivation is a significant reduction in their tax bill (and increase in after tax income). The idea is that the company's income then grows more, which in turn makes the stock go higher (than it would've been).

 

[86Hawkeye]

The company made sure that executives got $63 million of offset their tax burden......shareholders got stuck with the whole load.

So, they "grossed up" their stock awards to cover the tax hit.

That part is shady....but legal.

If I was a shareholder, I would revolt on that one. Fire the BOD.

SEC, the expression on your face says it all

 

[Hawk in SEC Country]

So, they "grossed up" their stock awards to cover the tax hit.

That part is shady....but legal.

If I was a shareholder, I would revolt on that one. Fire the BOD.

SEC, the expression on your face says it all

Pretty shitty to do to long time share holders. Lot's of people getting screwed, while execs get their taxes covered.

 

[thewop]

So, they "grossed up" their stock awards to cover the tax hit.

That part is shady....but legal.

If I was a shareholder, I would revolt on that one. Fire the BOD.

SEC, the expression on your face says it all

"grossing up" isn't shady, happens all the time when employees get gifts or incentives.

Also, since it's "paper gain" at this point, they could actually sell and realize the income sometime soon, right? It's like getting a stock grant where you're taxed up front on it. We always had an option of paying taxes out of pocket, or "sell to cover" in which you'd give up shares in order to not pay the taxes out of pocket. This sounds like standard practice to me unless I'm missing something major here.

 

[86Hawkeye]

"grossing up" isn't shady, happens all the time when employees get gifts or incentives.

Also, since it's "paper gain" at this point, they could actually sell and realize the income sometime soon, right? It's like getting a stock grant where you're taxed up front on it. We always had an option of paying taxes out of pocket, or "sell to cover" in which you'd give up shares in order to not pay the taxes out of pocket. This sounds like standard practice to me unless I'm missing something major here.

All true from an employee perspective, but what about all the non-employee shareholders?

 

[The Tradition]

Yeah, if someone has a $75,000 capital gains tax bill, then that someone has been compensated very handsomely.

The corporation isn't screwing this person, the government is.

 

[22*43*51]

Pretty shitty to do to long time share holders. Lot's of people getting screwed, while execs get their taxes covered.

What are your friend's new holdings worth?

He owned a piece of company X. Company X grew by acquiring company Y.

It should have increased the size of the piece your friend owns.

So what is the new value compared to old?

 

[Mattski]

This is more of an irs issue than a corporation issue imo. Requiring shareholders to pay taxed on yet to be earned/received capital gains is just stupid law.

 

[thewop]

All true from an employee perspective, but what about all the non-employee shareholders?

In this case, if the Sr. Executives were the only ones who got "grossed up," then they got a perk. It's good to be king, and life ain't "fair." Those people also put up with a heck of a lot more crap and bare a lot more stress than most employees.

Did the non-employee shareholders not get more shares? (hence the taxes) If they got NO shares, and the shares the did have didn't get an significant rise in value from this transaction, then they're getting screwed, but it doesn't seem that's the case.

 

[eightno2002]

From Bloomberg, "stock has gained 25% since the day before the deal was announced in June"

 

[Titanhawk2]

time and time we hear this story over and over.

I just got off the phone with a good friend who works for Medtronic in Minneapolis. Apparently the company acquired another company called Covidien in Ireland....avoided paying taxes on the transaction.....and in the process, have shifted the tax burden to their shareholders..........which include a lot of current and former employees.
My friend has received a tax bill of $10K........she has friends who got a bill for $75K+.......

Can they sue in a class action? Anyone have any experience in this, or any knowledge of counter measures that can be taken?

Why would the company pay taxes on the transaction? I've not heard of that tax.

If the employees own options that were sold and they received a payout, they have to pay taxes. If they were given stock as part of the transaction, it's probably taxable as income.

 

[86Hawkeye]

In this case, if the Sr. Executives were the only ones who got "grossed up," then they got a perk. It's good to be king, and life ain't "fair." Those people also put up with a heck of a lot more crap and bare a lot more stress than most employees.

Did the non-employee shareholders not get more shares? (hence the taxes) If they got NO shares, and the shares the did have didn't get an significant rise in value from this transaction, then they're getting screwed, but it doesn't seem that's the case.

My point is the non-employee shareholders didn't get the gross up to cover taxes. Everything else you said is certainly true.

 

[86Hawkeye]

This is more of an irs issue than a corporation issue imo. Requiring shareholders to pay taxed on yet to be earned/received capital gains is just stupid law.

True. Vast majority of the shareholders are probably cash basis (i.e. individual) taxpayers.

You can say the same thing about the AMT and how that's been bastardized from its initial concept.

 

[thewop]

My point is the non-employee shareholders didn't get the gross up to cover taxes. Everything else you said is certainly true.

Gotcha. Well, at least your friend has some extra income to be had should they choose. I've never heard of a company grossing up people who don't work for the company, but I suppose it happens somewhere.

 

[Hawk in SEC Country]

I'll admit.....i have some investments and a retirement fund that are doing well..........but I really don't know a lot about what is happening with my friend or the whole situation.

 

[Hawkeye009]

It is a crappy result but that doesn't mean that its wrong. The gains on the stock haven't been taxed as tehy appreciated because there had not yet been a realization event. The owners thus deferred their tax (like all holders of appreciated assets). The inversion created an effective sale of stock and corresponding tax liability. The shifting of tax liability to shareholders in inversions is the "cost" of lowering the corporation's US taxes. It's a wonderful system that we have.