Pfizer and Astra Zeneca: The Corporate Inversion Relocation Game

James Hall
21st Century Wire

Leave it to the corporatist tax attorneys, re-incorporating a company overseas in order to reduce the tax burden on income earned abroad, by having a foreign company buy its current operations.

The foreign company then owns assets, and the old incorporation dissolves, so goes the strategy of corporate inversion relocation. This Corporate Tax Shell Game, practiced with keen enthusiasm by world-class tax evaders and administered through their legions of CPA accountants, all rely upon a tax code designed to drive business overseas. Professor Kenneth P. Thomas cites the latest trend.

“The FT reports that most of the new inversions are taking place in the context of a foreign acquisition. Two U.S. pharmaceutical companies, Perrigo and Activis, have bought Irish drug makers and are shifting their headquarters to Ireland, where the corporate income tax is only 12.5 percent. Other companies are relocating to the Netherlands or the United Kingdom after acquiring firms based there. I use the term “relocation” advisedly, because in fact these maneuvers will leave their U.S. operations unchanged.”

A how to guide appears in, A guide to business relocation in Europe, that provides charts and tax rate comparisons by country. It goes on to explain four methods and variations, such as full migration, use of IP holding companies, regional hubs and off-shoring, as well as how relocation can add value under globalization, offer alternative responses during economic downturns, recognition of tax incentives and create competitive advantages. Well, so much for the PR pitch. Since pharmaceutical acquisitions and mergers are in vogue, The Street asks, What’s with all the healthcare and pharmaceutical mergers?

“The latest merger talk in pharmaceutical circles is Pfizer’s pursuit of the British drug maker Astra Zeneca (AZN). The latter seems reluctant to be acquired, but Pfizer has been aggressive in its pursuit, despite a long-standing history as one of America’s oldest companies.

And yet there could also be another reason to account for the huge spike in activity. Congress is in the process of considering raising the amount of assets a US companies needs to maintain overseas from 30% to 50%, making inversion significantly less attractive.”

Heed the warning from chief executive Barry O’Leary of the Irish IDA, when he speaks out against such inversion practices.

“As we’ve said for many years, ‘brass-plate’ operations provide no real economic benefit – we want companies that are going to provide jobs and investment.”

Mr. O’Leary continues:

“In relation to transactions that may not involve real substance in terms of jobs and investment in the Irish economy, the department has concerns and is examining ways to discourage such transactions without damaging legitimate business activity.”

Is it not ironic that maximizing after tax returns, well established companies move their business charter to tax jurisdictions that offer new job creation incentives? Who could deny that a dominant aptitude of the globalist transnational’s is to work the system to avoid paying taxes?

Just blaming those greedy corporate boards is not sufficient. Even IRS Chief John Koskinen Says Agency Cannot Stop Corporate Inversions.

“The US probably cannot take regulatory action to prevent companies from paying lower taxes through corporate deals that shift their tax residences to low-tax regimes outside the country, according to the head of the Internal Revenue Service (IRS).”

“We try to make sure people are within the bounds, but if they’re within the bounds, if they play according to the rules, then they have a right to do that,” he added.

The point that should be discernible to any businessperson, the rules in the United States, made to encourage the exodus of jobs have disincentives for companies from reinvesting domestically. The globalists only want to sell into the American market.

A previous attempt to regulate Inversions under Section 7874 of the Internal Revenue Code: Flawed Legislation, Flawed Guidance, just created different tax incentives to abandon accountability.

“Congress passed the American Jobs Creation Act of 2004, adding section 7874 to the Internal Revenue Code. The new law effectively negated the tax benefits of inversions into tax haven parent corporations where the ownership of the group was not significantly affected by the restructuring. If, on the other hand, there was a significant change in ownership and if the change was not due to a public offering of shares in the foreign corporation, the new law sought only to impose U.S. tax on gains accrued by the U.S. parent up to the date of expatriation without being offset by foreign tax credits or net operating loss carryovers. If the group had substantial business activities in the foreign corporation’s country of incorporation, the new law would not apply.”

Stuart Webber concludes in Escaping the U.S. Tax System: From Corporate Inversions to Re-Domiciling, illustrates the actual impact of the practice.

“Section 7874 has made it more difficult to escape U.S. tax policies, but it has not made it impossible. Most start-up firms would be wise to incorporate abroad, unless they plan to do considerable business with the U.S. government. When a domestic firm merges with a foreign enterprise, they might choose the latter to be the corporate parent, at least for tax purposes. U.S. worldwide tax policies increase tax and administrative costs, and there are no signs this will change soon.”

Providing inducements for American enterprises to move corporate headquarters overseas is suicidal. The Negotium essay, Rational Tariffs Lower Irrational Trade Deficits, provides the argument for building a strong domestic economy. A clear solution is possible with a simple tax requirement that if you sell into the domestic market, a foreign company, which includes any corporate inversions of former American businesses, needs to pay a tariff.

The globalists fashioned their Corporatocracy as a refugee from accountability on many levels. However, exempting their ventures from paying actual and equitable tax obligations is a prime concern for the Plutocrats. Relocating their business plan to build real wealth creation enterprises needs to be the common goal for everyone. Achieving this vision is possible. The inversion of tax policy that returns to a former import tax, which protected the real economy so well from the inception of the country, offers hope.

Read the entire article on the Corporatocracy archive page

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