The latest Fortune 500 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, two corporations that moved their corporate domiciles out of the United States for tax purposes.
Fortune has a policy of removing from the prestigious list companies that move 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 185th on the new list and Mylan would have been listed at 368. On the Standard & Poor’s 500 index, Medtronic and Mylan continue to be treated like American companies.
Scott DeCarlo, editor of the Fortune list, told the Post, “The Fortune 500 is going to remain a list of companies based in the U.S.” DeCarlo said Fortune wants to “maintain the integrity of the list.” Since 2000, 10 companies have been removed from the 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. Last year, Walgreen and Pfizer contemplated deals to leave, but their attempts failed, while Walgreen and Pfizer Medtronic and Burger King completed deals. Warren Buffett’s Berkshire Hathaway conglomerate helped the Burger King deal by helping to finance Burger King’s takeover of Canada’s popular fast-food chain, Tim Hortons. The company, renamed Restaurant Brands International, established its domicile in Canada. Chemical giant Monsanto, currently 197th on the list, may work a deal with Swiss-based Syngenta, the Post reports.
Congress has raised the possibility of legislation to make it harder for companies to become foreigner corporations for tax purposes while continuing to base operations in the U.S. and benefit from many of the advantages the U.S. has to offer. Business and finance experts have repeatedly urged reform of the corporate tax code to stem the loss of corporate tax revenues. The Treasury Department issued regulations that blocked some planned corporate departures. The regulations made Medtronic’s departure more difficult. But no substantive action has been undertaken Rep. Sandy Levin and his brother, since-retired Sen. Carl Levin, both of Michigan, introduced short-term-fix legislation, but their bill went nowhere, the Post reports.
Some recent corporate departures have taken an indirect route. Salix Pharmaceuticals and Auxilium Pharmaceuticals, whose departures were derailed by the new Treasury regulations, were both acquired by overseas corporations that had previously been based in the U.S. Auxilium was acquired by Endo International and Valeant Pharmaceuticals acquired Salix.
From 2002 to 2009, nine companies were removed from Standard & Poor’s 500 index when they moved offshore, but in 2010, S&P reversed the policy and stopped removing corporate deserters from the S&P 500 and started relisting some of those previously removed, the Post reports. In 2014, the S&P 500 included 28 companies that had left or were never based here.
The Post says that the S&P 500 matters more to companies than the Fortune 500. While the Fortune 500 confers prestige, the S&P 500 has economic consequences. When a company is removed from the S&P 500, index investors have to sell and the company’s stock price is hurt.