Obama gets tough on 'unpatriotic' tax inversion deals

British takeover targets decline as Obama administration moves to end tax avoidance deals

Share prices of potential UK takeover targets tumbled in early trading after President Obama’s administration slammed shut the door on US companies making foreign takeovers in order to avoid tax.

Drugs giant AstraZeneca fell almost 6 per cent as hopes rapidly faded that US rival Pfizer might revive its £69 billion bid which failed earlier this year. Likewise Shire, which agreed a £31 billion takeover by another US pharmaceutical giant, AbbVie, saw its shares drop almost 7 per cent.

Intercontinental Hotels, which was the target of a £6 billion possible takeover by US hotels group Wyndham, fell 3 per cent and Smith & Nephew, the artificial limbs maker reportedly targeted by Michigan-based Stryker, was off 4 per cent.

All of those deals or potential deals were to a great extent driven by US buyers keen to shift their tax domicile away from the US to the more benign UK tax regime.

But Obama’s Treasury Secretary Jacob Lew last night moved to end such tax avoidance deals, which also included moves by Burger King to shift its tax affairs to Canada and pharmacies giant Walgreen, accused of similar moves through its £6 billion takeover of Alliance Boots.

The Treasury announced, with immediate effect, new rules that will reduce the tax benefits available to companies that have “inverted”, while also making new inversions more difficult.

Obama, who has denounced inversions as unpatriotic and urged Congress to stop them, said: “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I’m glad that Secretary Lew is exploring additional actions to help reverse this trend.”

With the new rules in force immediately, several deals including Burger King’s, which have not legally completed, could be in jeopardy.

Lew said: “This action will significantly diminish the ability of inverted companies to escape US taxation. For some companies considering deals, today’s action will mean that inversions no longer make economic sense.”

Three new measures will seek to stop companies from accessing earnings from a foreign subsidiary without paying US taxes, including “hopscotch” loans, in which companies lend money to the new foreign parent company while skipping over the US-based company.