An American pharmaceutical company is poised to relocate its corporate billing address to Ireland in order to reduce its U.S. tax bill by millions of dollars per year. The Irish company it is attempting to buy signaled approval of the firm’s nearly $54 billion bid on Monday.
AbbVie, which reported almost $19 billion in revenue from drug sales last year, is currently based in North Chicago, Illinois. It is attempting to buy Shire, the Dublin-based maker of Adderall and other drugs, in order to locate the merged company’s headquarters in Ireland and take advantage of that country’s tax haven status.
The deal, which is known as an “inversion” among corporate tax strategists and analysts, will reduce AbbVie’s tax liabilities in the U.S. by untold millions of dollars.
Inversions have become an increasingly popular way for American companies to dodge taxes. AbbVie’s inversion would be the 77th in the 30-year history of the maneuver, and the vast majority of those deals have taken place in the last decade. The deals are a particularly hot trend in the drug industry, with Pfizer trying and failing to invert earlier this year, and a handful of other, smaller companies lining up to conduct similar deals.
Companies sometimes justify inversion deals by pointing to business benefits rather than merely tax advantanges, but the AbbVie-Shire deal is almost entirely driven by tax concerns, according to the Wall Street Journal. “Tax considerations appear to be the primary driver in AbbVie’s courtship of Shire. The companies have little overlap in their respective businesses, limiting likely cost synergies,” the Journal wrote.
Even if the company is intentionally ducking U.S. taxes by changing its mailing address without relocating its actual research, production, and sales operations over the border, it is not breaking the law. Inversions are legal, as are most of the complex international accounting arrangements used to keep the tax man away from companies like Apple, Caterpillar, Google, Microsoft, and scores of other businesses large and small. These companies often pay lawyers and accountants tens of millions of dollars to ensure that they are following the letter of the law in establishing their profit-shifting systems, and then reap billions of dollars in tax savings benefits over the ensuing decades.
The countries that lure U.S. companies with generous tax rules do not necessarily reap much tangible economic benefit from their tax haven status, as Ireland learned this decade. While political leaders pay lip service to reforming tax rules and ending the international race to the bottom that these countries engender by trying to outdo one another, real reform is lacking. Despite the E.U.’s stated interest in curbing harmful corporate tax tricks, the man who is most likely to be the next head of the European Commission is the former leader of Luxembourg, a notorious tax haven.
A Congressional Research Service (CRS) report estimated that corporate offshoring costs U.S. taxpayers at least $30 billion, and possibly as much as $90 billion, each year. Even at the low end of that estimate, that’s enough money to pay for pre-school for every American child, which the Obama administration has estimated would cost $90 billion for a whole next decade, and have enough left over to pay for the entire National School Lunch Program each year.
The CRS estimates refer to legal corporate tax avoidance but leave out criminal tax evasion by companies and individuals. The total estimated cost of both tax avoidance and tax evasion by both people and companies is about $300 billion per year. U.S. companies now have $2 trillion in profits socked away offshore, and wealthy people of all nationalities are hiding an estimated $4.5 trillion from their respective governments in offshore bank accounts and investment funds.