Procter & Gamble and the art of tax avoidance
Friday, October 21, 2011 at 01:59PM The tax-avoidance spotlight has been shining brightly, via the media, on companies such as General Electric, Exxon Mobil and Verizon, and on the big multinational banks. But some of the most clever and innovative ways to avoid taxes are being used by a company not usually associated with financial wheeling and dealing: Procter & Gamble.
In three deals spread over almost a decade, the owner of Tide detergent, Bounty towels, Gillette shaving products and many other household names, has managed to reopen a loophole that Congress closed in 1997. By my estimate, P&G’s profits on the deals, which involve selling brands it no longer wants, total about $6 billion, are tax-free to the company and are tax-deferred to its shareholders, possibly forever.
A straight-up sale would have triggered a $2 billion federal tax bill and a hefty state tax bill (for details, see fortune.com/sloan). All three involve so-called Reverse Morris Trust transactions, of which more later. “P&G is the most active practitioner of this technique,” tax expert Robert Willens says.
Why isn’t P&G on the tax radar? Because it has kept a low profile, and because the deals have been spread over an extended period: Jif peanut butter and Crisco shortening in a 2002 deal, Folgers coffee in 2008 and Pringles chips in a deal scheduled to close this year. Besides, the deals are so convoluted that you have to be a tax techie (or a masochist) to make your way through them.
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