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AbbVie/Shire deal under threat from tax laws

Published on 07/08/14 at 08:37am
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The £32 billion deal between AbbVie and Irish specialist biotech Shire could be under threat from new rules in the US that want to stop acquisitions motivated by tax dodges.

The US Treasury has warned this week that it is “reviewing a broad range of authorities for possible administrative action” in order to deter companies from using cross-border deals to escape US taxes – a policy known as tax inversion.

But beyond this, political attacks on these deals have been becoming louder since March and US president Barack Obama last month criticised the ‘corporate deserters’ who had ‘renounced their US citizenship’ by moving offshore.

He has also said that new laws could be put in place to retroactively stop firms who have made such deals over the past few months – and this would put July’s AbbVie-Shire deal firmly under its crosshairs.

In fact shares in Shire fluctuated yesterday and closed down by more than 4% at £46.80 after it emerged that the US Treasury was trying to circumvent Congress – which has been unable to break a deadlock over the issue – and unilaterally introduce measures to limit tax-driven mergers.

On the same day, Obama said he did not want the inversions trend to grow. “We don’t want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying […] ‘some of our competitors are gaming the system. We need to do it too’.”

The Obama administration also says that if the tax inversion trend continues, it could result in billions of dollars of lost taxes for the country.

In May, US giant Pfizer attempted a takeover of British-based AstraZeneca in a potential $118 billion deal that would see it move its tax domicile to the UK, potentially saving the firm around $800 million in tax per year by doing so.

The deal, which eventually collapsed when AZ rebuffed Pfizer’s advances, set off warning lights for the US government and was followed hard on its heels by the AbbVie/Shire takeover.

The firm says that the combined group, to be known as ‘New AbbVie’, would have an effective tax rate of just 13% by 2016, dropping from 22% after shifting its tax base from the US, showing just how much a ban on these deals would cost the company.

Analysts now question whether Pfizer will attempt another bid for AZ, which could happen as soon as this month, given the uncertainty over whether its deal would be barred under new rules. Shares in AstraZeneca fell yesterday by nearly 3.6% to £41.90.

Congressional Research Service data shows that 47 American companies have moved their tax headquarters abroad in the past decade, with a further 12, including AbbVie and Medtronic, which is merging with Covidien group of Ireland, potentially about to move their base.

Ben Adams

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