The recent bid by pharmaceutical giant Pfizer to acquire British-based drug maker AstraZeneca has given the senior senator from Michigan, Carl Levin, just the opening he has been seeking: to offer his bill to prevent such “tax inversions” from taking place. Said Levin:
It’s become increasingly clear that a loophole in our tax laws allowing these inversions threatens to devastate federal tax receipts.
We have to close that loophole.
If the deal between Pfizer and AstraZeneca (currently in doubt) actually takes place, the tax inversion would allow Pfizer to consider Great Britain as the company’s domicile, allowing it to pay taxes at a much lower rate than it does here. According to the Department of the Treasury,
The term inversion is used to describe a broad category of transactions through which a U.S.-based multinational company restructures its corporate group so that after the transaction the ultimate parent of the corporate group is a foreign corporation.
Although many recent such inversions have taken place for competitive reasons, the number has been increasing greatly thanks to the predictable result of the Obama administration’s raising of corporate tax rates to the highest in the world, approaching 40 percent. For instance, Michigan-based Perrigo’s recent acquisition of Irish biotech company Elan will allow it to pay taxes in Ireland of just 17 percent, compared to the 30 percent it was paying the United States, saving an estimated $118 million a year in taxes. Omnicom’s merger with Netherlands-based Publicis will save it about $80 million a year, while Liberty Global’s purchase of Virgin Media, located in England, will lower its tax bill significantly, thanks to the 21 percent corporate tax rate there.
There have been nearly 20 companies either making the move, or considering it, since 2012. In the past, other well-known companies have done inversions, saving taxes while retaining essential control in the United States. McDermott International, an oil and gas company, is now incorporated in Panama while remaining headquartered in Houston, Texas. Foster-Wheeler has its headquarters in the United Kingdom but its registered office for tax purposes is in Switzerland.