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Pfizer AstraZeneca deal less likely as US announces crack down on tax inversions

Article By: ,  Financial Analyst
September 23, 2014 4:45 PM

Shares in drugmaker AstraZeneca fell today (September 23rd) after the White House announced a crackdown on tax avoidance deals known as inversions.

These deals have been increasingly popular in recent months and allow companies to escape US taxes by reincorporating abroad. The move could deter Pfizer from making another attempt to acquire AstraZeneca, after a $118 billion (£72 billion) takeover attempt failed in May, Reuters report. 

The US company targeted AstraZeneca partly to move its headquarters to Britain and benefit from the UK’s lower corporation tax rate. AstraZeneca rejected Pfizer’s overtures but the US firm kept its options open to make a second approach, according to the Guardian. AstraZeneca was down 5.9 per cent to 4,307.500 at 09:26 ET today.

President Barack Obama said new Treasury department measures would make inversions less attractive, including making it more difficult for an inverted company to access money made outside the US.

In particular, the benefits of so called hopscotch loans – under which foreign units and the US business lend each other money – will be removed.

The Treasury department is also strengthening the requirement that the US owners of the new inverted firm have to earn less than 80 per cent of the new entity, the BBC reports.

"We've recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I'm glad that [Treasury secretary Jack Lew] is exploring additional actions to help reverse this trend," the president said in a statement.

In a recent inversion deal, Burger King bought Canadian coffee and doughnut chain Tim Hortons.

The new group has moved its headquarters to Ontario, Canada, where the corporate tax rate is 26.5 per cent, instead of a US rate of 35 per cent.

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