Ireland is set to become home to the world's largest car seat maker, Adient, which is being spun off following the tax-driven merger of US conglomerate Johnson Controls and Cork-based Tyco International.
Johnson Controls has decided recently against its original plan to base Adient in the UK in favour of incorporating the business in Ireland, the group told analysts on a conference call last week. However, it will not have any manufacturing presence here.
A spokesman said that the change of plan was not influenced by the UK’s decision in June to quit the EU, nor to achieve a better effective corporate tax rate, which it estimated between 10 per cent and 12 per cent for either jurisdiction.
“The spinoff of Adient is a complex global transaction. As our process progressed, it was determined that an Irish domicile will deliver additional benefits and generate more value for shareholders,” the spokesman said by email, in which he declined to elaborate on the benefits.
The $14 billion merger of Johnson Controls and Tyco, a maker of commercial fire and securities system based in Cork but run out of New Jersey, was announced in January as a so-called tax inversion manoeuvre that allows US groups to shift their legal address to cut their tax bill.
At the time, US president hopeful Hillary Clinton called the deal an "outrage". Republican nominee Donald Trump has said that tax inversions underscore the need to bring down US corporate tax rates.
A subsequent move by US president Barack Obama in April to clamp down on inversions torpedoed the $100 billion merger of pharmaceutical group Pfizer and Irish-based Allergan, the Botox maker.
Tyco secured its Irish base when it moved from Switzerland to Ireland in 2014, citing the country’s “business-friendly atmosphere and well established legal and regulatory framework”. The company had also previously been registered in Bermuda.
Johnson Controls initially unveiled plans to spinoff its car seating business as an independent company 12 months ago, but was forced to change key elements of the plan after it subsequently agreed to merge with Tyco in January.
While the original plan envisaged distributing Adient stock to shareholders on a tax-free basis, the repercussions of Tyco deal meant the stock would be treated as a taxable dividend for recipients. But the deal has made it easier for Johnson Controls to relocate the new company outside the US.
Adient, which it is separated out at the end of October after paying a $3 billion net dividend back to Johnson Controls, will have a 10 per cent to 12 per cent effective company tax rate, compared to a 17 per cent for the group for the second quarter. The group rate is also expected to be lowered as a result of the Tyco deal.
