James Moore: Don’t bet on Congress tackling bad marriages


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The Independent Online

Outlook One consequence of the UK’s cynical approach to the corporate tax game has been the targeting of its companies by American rivals in search of more favourable domiciles.

Tax inversion was the major motivating factor behind drug giant Pfizer’s pop at UK rival AstraZeneca until the latter’s resistance to playing ball combined with a transatlantic controversy, scuppered the deal. But several smaller transactions are getting through the system, notably the takeover of (Irish domiciled) Shire Pharmaceutical by America’s AbbVie, the largest tax inversion deal to date.

It’s a deal that has sparked unhappiness from some of AbbVie’s shareholders, with Bloomberg reporting that a Louisiana pension fund is mulling legal action as the transaction, as currently structured, represents a taxable event that may force it to sell up.

The US authorities, however, are trying to come up with more serious impediments to future such marriages of convenience.

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US Treasury Secretary Jack Lew, frustrated by the inability of the US Congress to make any progress on more substantial legislative change, has introduced new rules that ought to make it harder to set up an inversion in the first place, and harder for those that manage it to get their hands on their overseas cash without paying US tax.

While shares across the UK pharmaceutical sector took a hit from this, a contrarian view holds that Mr Lew’s measures may actually spark even more deals because there appear to be ways around them which Congress ought to be able to close down. 

But that may be over-stating the case. Congress finds difficulty in agreeing on anything more substantial than a lunch menu let alone complex rules on corporation tax.