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For Houston-based Cardtronics Inc., Europe is the new land of opportunity, so much so that the leading ATM network owner and operator plans to “redomicile” in the United Kingdom. The move is likely to cut the company’s tax rate, possibly by half, but Cardtronics says that’s just one of several reasons for the change.
Under the plan, Cardtronics will change its location of incorporation from Delaware to the U.K. and establish European headquarters in London. Houston will be the North American headquarters.
In announcing the move Wednesday, Cardtronics said more than half of its global workforce already is in the U.K., and that its fastest-growing business segments are in Britain and continental Europe. The company has made a number of acquisitions in Europe in recent years, and 30% of its 2015 revenues came from the U.K., Germany and Poland. The U.K. reincorporation, according to Cardtronics, will put the company in a global financial center where it has significant expansion opportunities, elevate its visibility among European institutional investors, and enable it to more effectively compete for acquisitions.
“Redomiciling to the U.K., where we have approximately 60% of our employees and a substantial business presence, will help drive our global expansion and strengthen our position as the leading global owner and operator of ATM networks,” chief executive Steve Rathgaber said in a statement. “We continue to be fully committed to our customers and employees in the U.S., including Houston, which will remain our North American headquarters.”
Cardtronics said it “plans to conduct corporate activities from both locations. Cardtronics does not anticipate any impacts for employees, day-to-day operations, or services to its customers as a result of the redomicile.”
If approved by stockholders at a special June 28 shareholder meeting, the change could take effect as early as the third quarter.
Cardtronics owned, managed or processed for a total of 191,582 ATMs in the first quarter, up from 110,555 a year earlier.
The planned move raised questions about taxes from analysts at Cardtronics’ first-quarter earnings conference call Thursday. U.S. corporate tax rates generally are much higher than European taxes. Some American companies have tried to lower their taxes by merging with European companies in so-called “inversions” where they re-establish legal headquarters in Europe but run most operations out of their old U.S. offices. Such inversions have raised cries by some lawmakers of tax dodging, and the U.S. Treasury Department recently issued new rules to make them more difficult.
In his prepared remarks at the call, Cardtronics chief financial officer Ed West anticipated such questions.
“Our plan to redomicile is quite different from the inversions that you hear about whereby an unrelated foreign company acquires a larger U.S. company and consequently enables the U.S. company to move offshore,” West said, according to a transcript from Thomson Reuters StreetEvents. “In contrast, we have initiated a self-directed redomiciliation of Cardtronics. Congress and the U.S. Treasury have specifically provided for this type of self-directed transaction where there are substantial business activities in this specific jurisdiction of redomicile. For us, that is the United Kingdom.”
When asked by an analyst what the company’s tax rate might be should the deal be approved, West said he couldn’t comment in detail until after the U.S. Securities and Exchange Commission approves the company’s documents for the shareholder vote. But he did note that the U.K. has lower corporate tax rates than the U.S.
“If you just look at the market rates, just in the United Kingdom, corporate tax rates are roughly 20% going down to what’s on the books right now as roughly 18%,” he said. “In 2020 I think our proposal in the budget is taking that to a 17% corporate rate, and that’s in contrast to the U.S. which is, you know, roughly 35% corporately, then you have various [state] tax rates across the country from there.”
ATM consultant Sam Ditzion expects the move will indeed lower Cardtronics’ tax bill.
“I don’t think it will have much of an impact on operations, but I am sure it will result in real tax benefits, both in the form of a lower corporate tax rate and more favorable tax treatment on global acquisitions,” Ditzion tells Digital Transactions News by e-mail.
In addition to the advantages of a U.K. location outlined by Rathgaber, the deal will “enable us to benefit from the more-competitive U.K. territorial taxing regime,” a Cardtronics spokesperson tells Digital Transactions News by email.
The spokesperson adds that “there are no plans for any of our senior management team to relocate to the U.K. Our executive team is quite mobile and will be spending time in our various offices around the world to continue to drive our global growth.”
