Synopsis: Foreign acquisitions (aka “inversions”) are, it seems, substantially driven by a desire to lower tax

Date posted: Tuesday, July 22, 2014

That tax has an impact on commercial decision making is well understood. That ‘taking it too far’ can incur the wrath of the revenue authorities is also well established. We have plenty of recent evidence for this …ask Gary Barlow.

Ask Margaret Hodge and the public accounts committee what they think of profit shifting and we think you can guess what the answer might be.

In the U.S. it seems that tax is also at the centre of the Mergers and Acquisitions world with many US companies (particularly in the pharma sector it seems) looking to acquire businesses in lower tax jurisdictions to legitimately be able to book profits outside of the USA. Without such acquisitions it seems it’s much harder to legitimately shift profits out of the reach of the IRS.

Apparently, through the appropriate use of an ‘inversion’ though, overall corporation tax rates for the US business can be brought down to the mid-teens from the mid-twenties. And on big profits…the savings can be eye watering.

No doubt, as for the UK and the EU, the authorities will be looking to do all they can to ensure that they get what they consider to be their fair share.

In the meantime though, tax continues to be a significant driver in the commercial decision making process both sides of the pond.

Tax, wag, dog?

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