Daily Tax Update - September 11, 2014: Inverters Risk Lower Credit Rating According to S&P Report

Inverters Risk Lower Credit Rating According to S&P Report:  In a report titled “Inversions Lower Tax Liabilities, But Also Can Impair Credit Ratings,” Standard & Poor’s Rating Service states that the credit positives of inversions, such as lower taxes and increased access to offshore cash and investments, are often outweighed by negative credit consequences, including higher leverage and the initiation of shareholder-friendly activities, which can undermine liquidity.  Specifically, the report identifies the following credit risks raised by inversions:

  • More aggressive financial policies, including higher leverage to fund acquisitions, spurred by the attraction of tax inversion benefits
  • Easier access to previously “trapped” cash, leading to more aggressive share buybacks and dividend payments, which can weaken liquidity and raise adjusted leverage metrics
  • Large tax-driven acquisitions can constrain a company’s financial capacity to conduct further strategic acquisitions needed to replenish its product portfolio
  • Future legislation limiting tax inversions, which could expose re-domiciled companies to higher US tax liabilities than anticipated
  • The potential for public, political, media, and customer backlash when an inversion is announced 

Weighted Average Interest Rates, Yield Curves, and Segment Rates for September:  Notice 2014-50 provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), and the 24-month average segment rates under Section 430(h)(2) of the Internal Revenue Code.  The notice also provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I).  

Notice 2014-50 will be published in Internal Revenue Bulletin 2014-40 on Sept. 29.