New rules not likely to stop Chiquita inversion, expert says

Tougher new Treasury Department rules meant to deter companies from moving offshore for lower taxes come as Charlotte-based Chiquita Brands International is planning to merge with an Irish produce company and move its headquarters to Dublin.

But a tax expert said Tuesday that the new rules aren’t likely to stop the Chiquita deal. The wave of “inversions” – in which a U.S.-based company merges with a foreign firm and moves its headquarters offshore for lower taxes – has become a hot-button political issue.

Chiquita announced plans in March to combine with Fyffes and put the combined company’s headquarters in Dublin. On Monday, Treasury Secretary Jacob Lew announced regulatory changes that would apply to all pending inversions, designed to make such deals harder and less profitable.

Federal tax expert Robert Willens told the Observer he doesn’t think the rules will affect Chiquita. He said the new regulations are “narrowly focused” on stock ownership and the transfer of money between subsidiaries of an inverted company.

“I don’t think it will impact the Chiquita deal,” said Willens, president of an independent tax and accounting service and a former Lehman Brothers managing director. “These new rules will not cause Fyffes to be treated as a U.S. corporation and, hence, the inversion should remain intact.”

The new Treasury rules put stricter limits in place on how much of the combined company’s stock can be owned by U.S. shareholders. As long as they own less than 80 percent, an inversion is allowed, but companies often use creative accounting to skirt those rules. The new regulations are designed to make it harder to do that.

In any case, Chiquita shareholders will own just over 50 percent of the combined company, so that wouldn’t prohibit an inversion.

Other rules are aimed at making it harder for U.S. companies to spin off foreign subsidiaries in lower-tax countries, which is not something Chiquita and Fyffes are attempting to do. Additional Treasury rules would make it harder for inverted companies to dodge U.S. taxes by transferring cash between foreign subsidiaries, a practice known as “hopscotching.” It was unclear Tuesday how those rules might affect ChiquitaFyffes.

Chiquita spokesman Ed Loyd declined to comment Tuesday, instead referring to CEO Ed Lonergan’s comments during a conference call in August.

“Tax didn’t motivate our transaction, and it wasn’t a driver of our synergies,” Lonergan said then.

Chiquita and Fyffes have said that they plan to save $60 million a year by combining their operations, especially sourcing and logistics and that inversion tax savings aren’t influencing their deal.

Two rival Brazilian companies vying to break up the merger remain a bigger threat to Chiquita’s plans with Fyffes. Orange juice-maker Cutrale and banking conglomerate the Safra Group made an unsolicited offer to buy Chiquita for $611 million and forced the banana company to the bargaining table. The companies have cited the risks of any inversion-blocking actions by regulators as one of the reason shareholders should choose their offer over Fyffes.

Shareholders are scheduled to vote on the Fyffes deal Oct. 3 in Charlotte.