Accenture To Leave Sunny Bermuda For The Emerald Isle

Yesterday, Accenture’s Board of Directors unanimously approved a plan to change its place of incorporation from Hamilton, Bermuda to Dublin, Ireland. This will be put to shareholder vote in the next four months.

First, some history:

Prior to 2001, Accenture operated as a group of more than 40 locally owned partnerships and other entities in 46 countries. In 2001, Accenture's 2,500 partners chose to move to corporate form and seek a public listing; and voted to incorporate the parent company, Accenture Ltd, in Bermuda. If shareholders and the Supreme Court of Bermuda approve, Accenture PLC, an Irish company, will replace Accenture Ltd. as the parent company.

Second, the background:

President Obama’s administration recently announced significant changes in US tax policy, with a view to target companies which are basically operating in the US but are incorporated in tax havens outside America, and bringing their worldwide income under US tax jurisdiction.

Accenture is not alone, just in the past six months, the WSJ reports that Tyco International Ltd., Foster Wheeler Ltd., Weatherford International Ltd., Transocean Inc., Covidien Ltd., and Ingersoll-Rand Co. have all announced plans or finalized plans to change their places of incorporation.

Third, the motivation:

According to William D. Green, Accenture's chairman & CEO, "After a careful review, our Board of Directors has determined that changing our place of incorporation to Ireland is in the best interests of Accenture and our shareholders. We believe that incorporating in Ireland will provide Accenture with economic benefits and help ensure our continued global competitiveness.…”

Reading between the lines, we believe here are the key reasons for making this change at this point in time:

Continue Low Effective Tax Rate

Clearly there are financial benefits accruing to Accenture, while Bermuda imposes no corporate income tax, Ireland does have a such a tax around 12.5%, but doesn't impose it on various intra-company transactions, thus making it relatively easy to avoid. Accenture will have to do some strategic tax planning to ensure that the increased corporate tax rate in Ireland is effectively neutralized versus Bermuda. In 2008, Accenture paid $910 million taxes on a pretax income of $3.1 billion, almost 30% and less than the statutory US federal plus state tax rate of 39.5% on corporations.

Avoid Adverse Litigation

In addition, tax treaties signed in 1997 between US and Ireland can provide some form of protection for Accenture against any adverse litigation and potential double taxation.

Avoid Tough Proposed Legislation

Recent proposed legislation could be a problem for companies changing their place of incorporation from one tax friendly jurisdiction to another. Senators Levin and Doggett submitted bills that both require that companies controlled and managed in the US, regardless of where they are incorporated are subject to U.S. corporate-income tax. By moving at this time, Accenture can avoid the aftermath of this or any similar legislation.

Escape Public Criticism

“We have become concerned that the ongoing criticism of companies that are incorporated in Bermuda has raised questions that we need to address,” said Jim McAvoy, an Accenture spokesman.

US companies based in Bermuda are likely to face political and public criticism in the first wave following tax loophole eliminations as they are nearest to home country, US companies based in Europe may comparatively face less scrutiny at least on a relative scale.

Move Geographically With The Business

Almost 50% of Accenture’s business comes from Europe region which is the company’s largest region ahead of the 40% business coming from Americas. This is in line with other Big4 firms whose European revenues also exceed US based revenues and are growing at a faster rate.

Finally, there are some things that will not change:

No material change in operations, financial results or tax treatment
Continue to be registered with the U.S. Securities and Exchange Commission
Shares will continue to trade on the New York Stock Exchange.
Subject to same SEC reporting requirements as NYSE companies

How did investors react to this? The news was released at 4pm on Tuesday after markets closed and ACN stock fell by 1.5% on Wednesday in line with the general downturn in the market. In summary, investors don’t really seem to think that this has any shareholder value impact.

Accenture is a financially very savvy company, and this move illustrates the agility and acumen of their operating and financial management. The company is not shy to take tough quick decisions to make or save money. Its original intent to incorporate outside the US caused some furor but the company effectively managed that and continued to pursue its original intentions. The current move is equally smart, and we have little doubt that Accenture will get this voted by shareholders and consummate the change in Q3 of this year. If by any chance, the shareholder vote is not in favor, we’ll be back to talk about this in a few months.