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Irish Pharmaceutical Firm Shire In USD55bn Merger

by Jason Gorringe,, London

24 July 2014

US-based pharmaceuticals giant AbbVie plans to merge with the Dublin-headquartered Shire in a USD55bn deal that is expected to reduce the group's effective tax rate to 13 percent.

In order to undertake the transaction, AbbVie has formed a new company, New AbbVie, which is to be incorporated in Jersey, Shire's current place of incorporation. Following completion, New AbbVie will become the holding company of the Shire Group and the AbbVie Group. It will be domiciled in the UK for tax purposes.

In a call with investors, Larry Peepo, AbbVie's Vice President of Investor Relations, said: "We expect the effective rate for the new company to benefit from the efficient tax structure AbbVie currently has in place. As a result, we are forecasting a tax rate for the combined group of approximately 13 percent by 2016. This structure provides AbbVie with flexible access to its global cash flows." AbbVie's current effective tax rate is about 22 percent.

Fielding questions, AbbVie's Chairman and CEO, Rick Gonzalez, said that while a lower tax bill was "clearly a benefit," it is not the "primary rationale" for the deal.

Referring to the ongoing debate on corporate inversions in the United States, Gonzalez stressed that "companies like ours need access to our global cash flows to be able to make investments all around the world, but to specifically be able to make investments in the US. Today we are at a disadvantage versus many of our foreign competitors and, in my personal opinion, that is the important debate that we should be having around inversion and all aspects of the US tax code."

A US company that merges with an overseas counterpart can move its headquarters abroad (even though management and operations may remain in the US), and take advantage of the lower corporate tax rates in foreign jurisdictions as long as at least 20 percent of its shares are held by the foreign company's shareholders after the merger. In the merger, 25 percent of the combined company's shares will be held by Shire's shareholders.

TAGS: capital gains tax (CGT) | tax | investment | business | holding company | Ireland | corporation tax | Jersey | United Kingdom | offshore | multinationals | tax planning | transfer pricing | tax rates | United States

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