If AbbVie Succeeds There Could Be a Homecoming for Shire
The latest proposed tax inversion deal just got even bigger. U.S. bidder AbbVie hiked its offer for Dublin-based Shire PLC Sunday after four days of talks in a deal that could now reach $31.35 billion, underscoring what it sees as the benefits of a tie-up that will also give it a foreign tax residence.
But it’s not Ireland’s tax-friendly regime AbbVie is eyeing. As part of the deal, AbbVie is proposing the combined company move across the Irish Sea and set up a new U.K. holding company. It would be a homecoming for Shire, which was founded in the U.K. in 1986 and started trading on the London Stock Exchange in 1996.
Back in 2008, Shire upped stakes and moved to Ireland for the same reason AbbVie is now seeking to merge: taxes. At the time, the U.K. was mulling tightening up its own laws to help it capture more tax on foreign revenue. Shire created a Jersey-based holding company and moved its headquarters to Dublin to help “protect the group’s tax position,” the company said at the time.
Today, Britain has relaxed its corporate tax rules (although it’s also threatening tougher terms for foreign bidders in takeovers), making it a more attractive place to do business. The current U.K. government has cut the corporate tax rate to 21%, falling to 13% by 2016. Tax on foreign profits is expected to fall to an estimated 5% from next year. And as of last year, the government has introduced a rate of 10% on income earned from domestically developed intellectual property.
“The U.K. in 2008 and the U.K. today in terms of its own tax situation is almost day and night,” says Shire Chief Executive Flemming Ornskov. Mr. Ornskov has so far spurned AbbVie’s advances, though he says the company is always evaluating its tax strategy.
Indeed, the U.K. has become one of the most attractive stalking grounds for inversion-minded American firms.
“The United Kingdom has created attractive incentives for companies to manufacture products and maintain and protect intellectual property, and we have seen that capital and jobs have followed these types of incentives,” Pfizer Chief Executive Ian Read said when he announced his offer for AstraZeneca PLC earlier this year. Pfizer’s offer, which swelled to about $120 billion, was ultimately rejected.
U.K. Treasury Minister David Gauke recently boasted the U.K. had overtaken Ireland in terms of tax competitiveness. Advertising giant WPP and media company Informa both moved back to the U.K. in recent years after temporarily decamping to Ireland.
Ironically, Shire is primarily a U.S. company: most of its research and development, sales, and over two-thirds of its employees are U.S. based. Around 500 of its staff are in the U.K., and roughly a hundred are in Ireland.