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Fortune 500 Drops Corporations that Move Their Domiciles from U.S.

Jun 18, 2015

The newest iteration of the Fortune 500—the list of the top 500 U.S. closely held and public corporations—does not include the medical device-maker Medtronic or the drug maker Mylan.

Fortune removed the two companies from its prestigious list for moving their domiciles out of the United States for tax purposes while continuing to be run from here, the Washington Post reports. Medtronic would have ranked 185 on the list and Mylan 368. Standard & Poor's 500 Index continues to treat the two like American companies.

"The Fortune 500 is going to remain a list of companies based in the U.S.," Scott DeCarlo, editor of the Fortune list, told the Post. "We want to maintain the integrity of the list." Since 2000, Fortune has removed 10 companies from the 500 list for leaving the country. S&P had a similar policy but reversed it five years ago.

A number of U.S. companies, across the spectrum of manufacturing, retail and service have recently considered or completed such off-shore deals. A year ago, Walgreen and Pfizer were considering deals to leave. The Walgreen and Pfizer attempts failed, but Medtronic and Burger King completed deals. Burger King's deal was facilitated with help from Warren Buffett's Berkshire Hathaway conglomerate, which helped finance Burger King's takeover of Canadian company, Tim Hortons. The company was renamed Restaurant Brands International and established its domicile in Canada. Chemical giant Monsanto, 197 on the list, reportedly may do a deal with Swiss-based Syngenta.

Congress has considered the possibility of legislation that would make it harder for companies to become foreigners for tax purposes while continuing to be based here and benefiting from all that the U.S. has to offer. A number of experts have said the U.S. needs to reform the corporate tax code. The Treasury Department issued regulations concerning some would-be desertions which made Medtronic's departure more difficult, but no substantive action has happened since. Rep. Sandy Levin and his brother, now-retired Sen. Carl Levin, both of Michigan, introduced short-term-fix legislation which went nowhere, the Post reports.

Some recent corporate departures have taken a less direct route. Two companies, Salix Pharmaceuticals and Auxilium Pharmaceuticals, whose departures were derailed by the Treasury regulations, have been acquired by overseas corporations that had previously been based in the U.S. Salix was acquired by Valeant Pharmaceuticals and Auxilium by Endo International.

From 2002 to 2009, Standard & Poor removed nine companies from its 500 index when they moved offshore. S&P had always listed some companies that have never been domiciled in the U.S., according to the Post. In 2010, S&P stopped kicking corporate deserters out of the S&P 500 and started relisting some of those previously removed. A year ago, the S&P 500 included 28 companies that had left or were never based here.

According to the Post, the S&P 500 matters more to companies than the Fortune 500. The Fortune 500 confers prestige, but when a company is kicked off the S&P 500, index investors have to sell and the company's stock price is hurt. Unless Washington acts, the country will continue to lose corporate tax revenues, the Post writes.

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