James Moore: They call it tax inversion, we call it outrageous


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Outlook No wonder people feel cynical about the pharmaceutical industry. As Ebola rages through West Africa, and with myriad other pressing medical problems to solve, the top priority of the industry’s leaders appears to be finding new ways to outwit the taxman.

Now the US taxman is biting back, albeit tentatively. Drugs group AbbVie has decided to reconsider its planned merger with London listed Shire, which had precious little to do with the latter’s treatments and everything to do with getting its hands on Shire’s tax domicile.

Unfortunately for AbbVie, the Obama administration is trying to call time on tax inversions – the popular Wall Street wheeze of finding a foreign company to merge with so you can re-incorporate in its home territory and avoid (high) US taxes.

To be fair it’s not only the pharmaceutical industry that has made use of the tactic. There have been 14 such deals in total. But drug groups have been the most high-profile players of this little game, which was brought to international prominence by Pfizer with its ultimately failed attempt to shoe-horn AstraZeneca into a deal of which the latter wanted no part. The US Government’s tax reforms have been criticised in some quarters as not going far enough. Indeed, bankers and lawyers believe there is still scope for inversions.

Unfortunately for AbbVie, the benefits are now much harder to see.

As for the Irish headquartered, Jersey registered Shire, well, there’s always the prospect of a $1.64bn (£1bn) break fee to console it. You might hope it would use that to bolster its research capabilities. If so, you’re likely to be disappointed.