U.K. rails against Shire’s tax tricks that suitors extol
Report skewers PwC for creation of Shire tax shelter it calls ‘tax avoidance on an industrial scale’
Shire’s Ireland address has made the specialty drugmaker a prime takeover target. AbbVie was attracted but dumped the $55 billion buyout when the U.S. Treasury Department threw cold water on the deal with tax rule changes. But now Shire’s own use of a tax haven has made it exhibit A in a dust-up over tax shelters being investigated in the U.K.
In what Alliance News calls “a damning report,” the Public Accounts Committee points to a program designed by Big Four accounting firm PwC for Shire ($SHPG) to locate a few employees, and lots of its money, in Luxembourg. The report questions the substance of Shire’s incorporations in the small country and says the drugmaker and PwC were unconvincing that the arrangement was anything other than “the promotion of tax avoidance on an industrial scale,” Reuters reports. Evidence determined Shire has two people in the country to oversee 7 companies and about $10 billion in intracompany loans. Because of the arrangement Shire paid a tax rate of 0.0156% on the profits held there.
The probe didn’t determine that the tax shelter was illegal but Margaret Hodge, chair of the committee said, Unless the government “takes urgent action, this irresponsible activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved.”
A spokesman for Shire, which moved to Ireland from the U.K. in 2008 to cut its taxes, told Reuters it always follows the tax laws of the countries in which it operates. PwC told the news service that it disagreed with the conclusions of the report and needed to do a better job of explaining “the positive role” it plays in the tax system.
The U.S. has also been working to stop the outflow of revenue as companies find clever ways to cut taxes. The so-called tax inversion deals, in which U.S. companies merge with European operations in lower-tax countries, became particularly popular with U.S. drugmakers as a way to cut costs in recent years. It figured prominently into Pfizer’s ($PFE) failed takeover of AstraZeneca ($AZN) last year and was the key ingredient to AbbVie’s ($ABBV) offer to buy Shire. Mylan ($MYL) struck a $5.3 billion deal to buy a piece of Abbott’s ($ABT) generics business and shift its tax base to the Netherlands leading some investors to speculate it will become a target for another U.S. company looking for its own tax inversion.
The U.K. accounting committed suggested the the government needs to fix the holes in its tax code that allow needed revenue to leak out of its coffers. It recommended penalties for accounting firms that create the schemes. “The tax industry has demonstrated very clearly that it cannot be trusted to regulate itself,” the PAC report said.