America's clampdown on tax inversions

The US government has issued new rules making it harder for American companies to cut their tax bill by relocating their headquarters.

President Barack Obama's administration has issued new rules to tackle the tax inversion loophole'. This is the practice whereby US firms merge with foreign peers and move their headquarters overseas to lower their domestic tax bill and put foreign earnings beyond the reach of the US taxman.

The tweaks make it harder for a deal to qualify as an inversion, and for firms to access their foreign cash without it being taxed. The government has acted unilaterally, as Congress is split on tax reform.

What the commentators said

The US government "has rained on the parade of UK companies that have attracted transatlantic interest based on the portability of earnings and cash as well as strategic rationale", said Alison Smith in the FT.

So shares in drug giants Shire and AstraZeneca "shivered" this week, on fears that their respective US suitors AbbVie and Pfizer might walk away from bids.

The Shire deal "looks the safer bet" given AbbVie's emphasis on the strategic fit. Pfizer, by contrast, is unlikely to be able to afford its quarry now that costs are set to rise.

But how effective is this clampdown really? Lawyers at Wickersham & Taft LLP, cited by The Wall Street Journal, reckon "most companies should be able to navigate the [changes] and complete a successful inversion with proper planning".

A key stumbling block is that, with Congress at loggerheads on the issue, it is impossible for the Treasury to stop such deals happening altogether. Don't expect that to change, said James Moore in The Independent. "Congress finds difficulty in agreeing on anything more substantial than a lunch menu let alone complex rules on corporation tax."

Recommended

The unscientific criticism of AstraZeneca could do lasting damage
Biotech stocks

The unscientific criticism of AstraZeneca could do lasting damage

Several European countries have suspended their use of AstraZeneca's Covid vaccine – for no good scientific reason. Matthew Partridge reports.
18 Mar 2021
AstraZeneca turns the tables as it acquires US pharmaceutical firm Alexion
Biotech stocks

AstraZeneca turns the tables as it acquires US pharmaceutical firm Alexion

AstraZeneca, the British pharma giant, was almost swallowed up by Pfizer a few years ago. Now it has struck a megadeal of its own. Matthew Partridge r…
17 Dec 2020
US inflation is rising – but it’s not enough to rattle markets yet
Inflation

US inflation is rising – but it’s not enough to rattle markets yet

The latest US inflation figures showed that consumer prices are rising more rapidly than expected. But markets shrugged. John Stepek asks why, and wha…
14 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021