I have always been taught there are only two things certain in Life: Death and Taxes. So it comes as no surprise that the latter is the main catalyst behind the US governments’ latest draft of measures to stop the recent plethora of US companies looking to purchase mostly European based companies, relocate their headquarters and in the process save an awful lot on money in corporation tax in a scheme known as Tax Inversion.
Whilst it was expected that there would be some sort of response from the US government on this, it had been expected to be only relevant to mergers going forward. As an idea of the severity its importance, the draft measures include all deals that haven’t been completed. Tax Inversion is a hugely divisive topic. Whilst it can be argued that in the most extreme terms it is tax avoidance, this is centred around retaining their material operations in the higher tax country, usually the US, with a largely visual headquarters in the lower country of tax origin.
However, before the measure’s where put in place these tax inversion deals were a completely legal way of efficiently avoiding double taxation on any profits a company might pay when repatriating money back to the US. in addition, they are not a new phenomenon as they first appeared in the early 1990’s with US companies relocating to Bermuda.
With the age of the internet and geographic borders not the physical boundaries they once were, many more companies have an international stance/presence. In my view, a harmonised tax scheme would be a better way of stopping these alleged form’s of tax avoidance. But, certainly in the short term, this does now question whether Pfizer Inc (LONDON:PFZ)’s interest in Astrazeneca Plc (LONDON:AZN) will continue or even if the AbbVie Inc (NYSE:ABBV) takeover of Shire pharmaceutical will happen at all.