Following on the heels of Mylan, AbbVie will buy Shire in a move that, among other things, will result in a significantly lower tax rate when the redomiciled company is fully headquartered in Ireland. More information can be found here (WSJ) and here (Bloomberg).
Analysts are saying there’s currently a flurry of rushed deals because the window for such inversions may soon be closing. However, in my opinion it won’t solve the fundamental problem that other countries are using low corporate tax rates as a competitive strategy to lure away U.S. companies. Lots of U.S. companies are complaining about the uneven playing field, especially since U.S. firms are taxed by the IRS on all their profits, even those earned in other countries (hence the huge piles of cash tech firms have overseas). I do hope the U.S. government can get its act together and respond coherently.
Here’s one controversial proposal that, honestly, makes a lot of sense: Dramatically simplify the tax code and eliminate the corporate income tax. In its place, levy a tax on dividends and capital gains at normal marginal income rates (my own opinion: tax only the capital gains above inflation, but at the same rate as income. That would help remove many investment distortions).
Update: Here’s another good rundown of the tax inversion issue from Yahoo Finance.
Update 2: Not so fast. The Treasury Department’s move to clamp down on tax inversions has scuttled the deal.