U.S. drug maker Pfizer has offered more than $100 billion to acquire its London-based rival, AstraZeneca. Pfizer says it likes AstraZeneca's strong "pipeline" of new drugs. But the American company makes clear it is pursuing the British firm because it wants to lower its tax rate.
All Pfizer has to do is buy the company and move its headquarters to London.
For companies, home isn't necessarily where the heart is. Or even where it does most of its business. Sometimes, it's where corporate taxes are lowest.
It used to be easier for companies to keep their legal bases in out-of-the-way places, like Bermuda. It's a practice known as tax inversion, and it was popular until 2004, when Congress changed the law. Now, companies whose ownership is 80 percent based in the U.S., are subject to U.S. taxes.
But tax inversion is coming back in a new form. In the last year, Chiquita, of banana fame, Liberty Global, the media giant, and drug company Perrigo all announced deals to buy foreign companies and shift their headquarters. In each case, it lowered their tax burdens.
"So it's something that is back as a hot thing for some companies to do," says Michael Kirsch, is a former international tax counsel for the U.S. Treasury and a law professor at Notre Dame. Kirsch says recent mergers between U.S. companies and foreign firms are aimed at circumventing the restrictions of the 2004 law.
That's because a merger often means the firms fall below the 80 percent domestic-ownership threshold.
Kirsch says after the merger, operationally, things don't change much. Executives and personnel of the U.S. company often stay in the U.S.
Economy
Sending Money On An Overseas Round Trip To Avoid Taxes