Friday, June 20, 2014

The Land Of Saints And Scholars And Tax Inversions

It's all the rage now, in pharmaceutical circles. Everyone wants an Irish domicile. Sure it's a lovely land, the Emerald Isle, but its true beauty lies in its corporate tax structure.
Home Sweet Tax Haven

Recently, Medtronic bought up an Irish firm that made related products, but what Medtronic most liked about Covidien was its Irishness. The marriage is not a love-match, but a business merger that will allow Medtronic to lay claim to an Irish address which in turn allows the firm to pay Irish taxes. What might once have been paid to Caesar Americanus can be plowed back into research and development, to say nothing of the benefits to be derived by the executives when it's time to hand out bonuses.

Medtronic is not alone.

Due to complex and convoluted laws governing corporate taxes and who pays what to whom, American multinationals have lots of money sitting in the bank accounts of their overseas branches, but to bring the cash back to headquarters would mean paying American taxes at 35%, the largest in the world. CEOs see more benefit in keeping the money in house, where they can use it as they see fit, rather than throw it away at a wasteful government. So how to revert this cash inversion? Buy overseas and move houses. Invest the capital in Ireland, make Ireland the home base, and the bottom line plumps up instantly.

AbbVie, a spin-off of drug-maker Abbott Labs, is trying to get in on the game as well, but the Irish-based pharmaceutical industry knows what's up and there are no bargain prices to be had.

The American firm's recent offer to Shire was summarily dismissed as inadequate. Not that Shire is worth what it claims it is worth, but those tax savings are worth some serious cash and it's no secret that AbbVie is buying that more than acquiring a competitor. AbbVie stands to benefit from Shire's rare disease pharmaceuticals, but AbbVie is doing quite well with Humira and really just needs an Irish address to call home. For tax purposes. And Shire's stockholders know this.

AbbVie will either have to come back with a counter-offer or find another suitor willing to make an arranged marriage of convenience. It's all the rage in Irish business circles, this courtship by wealthy swains in search of tax inversions in the land of saints and scholars.

Is it any wonder that the Irish State is fighting the EU on corporate tax regulations? What America does not get in tax income, Ireland will acquire a portion thereof, and as the Irish learned long ago, it's better to have a little than nothing at all.

No comments: