Author Topic: What if a company changes country  (Read 2808 times)

Grog

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What if a company changes country
« on: November 15, 2014, 10:26:04 AM »
Hi everyone, I was wondering something and maybe someone here has the right answers or could point me in the right direction.

Hypothetical question: the United States government goes crazy and changes a lot of tax rules in sfavor of huge companies so Apple decide to relocate. Will apple still be a s&p 500 company? If yes, for how long and what should happen so that s&p decides that Apple should no longer be considered?

Let's say apple moves to London and the London stock exchange will be where it will be quoted, becoming immediately the largest company.
What happens to the vanguard s&p 500 funds, do they sell all apple shares and they buy it back for the international funds? 

What happen to Apple 's stock owners, will they stock be automatically updated?

Is such a situation realistically possible? Does this makes the case for the Vanguard total world fund, that would never need to ' eliminate' shares from a moving company since it encompasses practically all the possible destination countries?


maizefolk

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Re: What if a company changes country
« Reply #1 on: November 15, 2014, 07:56:33 PM »
A bunch of different threads to answer in your question above but here are several:

-Being incorporated in a country other than the US isn't a barrier to being part of the S&P 500. According to wikipedia currently 27 of the companies in the Index are incorporated somewhere outside the states.

-The stock of companies incorporated in other countries can still be listed on US stock exchanges without those companies having to pay US taxes, and companies incorporated in the US still have to pay US taxes even if their stock is listed on a stock exchange in another country.

-It turns out that moving the jurisdiction a company is incorporated in is a hugely involved process. For US based companies trying to move their "home base" to another country, it is particularly hard. One option is corporate inversions (in the news a lot lately) but even that has all sorts of hops to jump through and criteria which must be meet if the new resulting company is to be considered not subject to US taxes.

deborah

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Re: What if a company changes country
« Reply #2 on: November 16, 2014, 03:29:58 AM »
They need to have a very good reason to move. For example, if you look up James Hardie, you will find they moved to the Netherlands from Australia. Most information you will find says that they did this because their asbestos compensation fund was too small.

Retired To Win

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Re: What if a company changes country
« Reply #3 on: November 16, 2014, 06:02:03 AM »
A company's home country matters for another reason: tax withholding of dividends.

I found out the hard way some years ago that countries will do that withholding even if your stock shares are held in a U.S.  tax-deferred account such as an IRA or 401(k).  It's truly difficult -- if not outright impossible -- to get that money back.  And those withholding rates can run as high as 35%!

So, I try to always remember to check a company's home country BEFORE I buy stock in a dividend-paying company.

RichMoose

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Re: What if a company changes country
« Reply #4 on: November 16, 2014, 10:40:53 AM »
A foreign company can easily list on an American stock exchange. If their listing is on NYSE or NASDAQ, they will be considered for the S&P 500 Index based on their size.

Many foreign based companies choose to list on American exchanges and deal with all the reporting rules and bullcrap imposed by Congress because love it or hate it, the US is still the worlds largest capital market and the USD is the world's premier reserve currency. It's the best way for a company anywhere in the world to sell shares and raise capital.

Personally, I would say the real issue isn't taxes, it's Dodd-Frank or Sarbanes-Oxley stuff that will send companies looking for other places to list.

mjs111

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Re: What if a company changes country
« Reply #5 on: November 16, 2014, 10:46:47 AM »
The S&P 500 Index is a list of 500 companies maintained by Standard and Poors to roughly represent the US econcomy. That said, being incorporated in the US is not a requirement (like it is with the Fortune 500 list) and as another poster said, there are already 27 companies in the S&P 500 Index that aren't incorporated in the US.

I've owned a couple of companies that re-incorporated out of the US in order to get a lower tax rate. Covidien (COV) was the most recent one, having re-incorporated in Ireland.  Nothing happened other than the company was a bit more profitable with the lower rate.  The company still traded on the NYSE, the ticker stayed the same.

A big advantage to re-incorporating outside the US (all other things equal) is that in addition to being taxed at a lower rate going forward, all of the money a company has made outside the US in lower tax rate locales can now be used at the corporate level for things like dividends, stock buybacks, and major acquisitions that require a large chunk of money, can now be done without being taxed first when it is repatriated back into the US.

Many companies like Cisco, Apple, Google, Microsoft have tens of billions of dollars "trapped" overseas that they can't bring back to the US unless they're okay with it getting taxed by whatever the difference is between the local tax rate and the US rate.  That's one thing I look at when I look at a company's balance sheet.  Of all that cash sitting on the balance sheet, how much is actually available at the US corporate level? For example, of Cisco's $52.1 billion in cash, only $4.7 billion is held in US accounts.  The rest really isn't available to be paid out to investors unless the company wants to pay tax bringing it back into the US.

As far as Apple trading on the London stock exchange, it could trade there while also trading on the Nasdaq.  Stocks can trade on multiple exchanges at the same time.  For example, Apple currently trades on both the Nasdaq and the Frankfurt stock exchange:

http://www.reuters.com/finance/stocks/chart?symbol=AAPL.O
http://www.reuters.com/finance/stocks/chart?symbol=AAPL.F


Mike

Grog

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Re: What if a company changes country
« Reply #6 on: November 16, 2014, 11:20:32 PM »
Thanks everyone for the answers. I was trying to understand and assess the risk of owning a single-country index vs for instance the Total World ETF.
I mean, globalisation is growing stronger and both the S&P500 and the total world stock more or less correlate in these last years. There is a difference in TER (0.05% vs 0.18%) and I was trying to assess if one of the advantage of the Total World Stock could have been the fact that companies cannot drop out of the index in case of relocation, since all the relevant countries are there.