U.S. Treasury moves to close tax inversion loophole

AstraZeneca (down 5%) and Shire (down 6%) shares lost a total of $8 billion in market cap Tuesday.  Abbvie, the company on the other end of the Shire deal, was down 4.6% in premarket trading.  These biopharmaceutical firms (and a few others) are in the middle of merger deals that aim to take advantage of the corporate tax savings that result from relocating the merged company outside of the U.S.  In a surprise move, the U.S. Treasury department tightened the rules overnight:

The new rules, effective immediately, will make new inversions more difficult to do and less potentially rewarding – but whether that will be enough to scupper deals that are pending or under consideration is not clear.

The action follows months of political debate, with Democrats urging prompt legislative action and Republicans pushing to address the problem later, perhaps in 2015, as part of a broader overhaul of the loophole-riddled federal tax code.

“Inversion deals now are clearly going to be very difficult to pull off,” Navid Malik, head of life sciences research at Cenkos Securities, said.

As I’ve posted before, closing the loophole does not solve the fundamental problem that the U.S. corporate tax code is providing a strong incentive to locate overseas.

This entry was posted in Economics. Bookmark the permalink.

One Response to U.S. Treasury moves to close tax inversion loophole

  1. Pingback: AbbVie will buy Shire in another Pharma tax inversion strategy | MechanizedIntelligence

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s