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U.S. drug maker buys rival, reincorporates in Britain to slash taxes

Sat., July 19, 2014

Illinois drug maker AbbVie Inc. said Friday it would buy European rival Shire for $55 billion and reincorporate in Britain, allowing the company to slash its tax rate in the latest move by an American firm to shelter its foreign earnings.

The deal creates a pharmaceutical giant with 30,000 employees and a $137 billion market capitalization. The new company will be headquartered for tax purposes on the British island of Jersey, where Shire is incorporated.

“The proposed transaction would create a well-positioned and focused biopharmaceutical company, giving us the opportunity to expand and augment our product portfolio, advance our pipeline, accelerate our growth, and create long-term value for our shareholders,” AbbVie chief executive Richard Gonzalez said in a message to company employees.

Among AbbVie’s products is the arthritis drug Humira. Shire is the maker of Adderall, a leading drug to treat attention deficit hyperactivity disorder.

The purchase adds fuel to an escalating debate in Washington about so-called inversions, in which an American multinational company buys a foreign competitor and restructures abroad to avoid paying the high U.S. corporate tax rate on its offshore earnings.

AbbVie, which is based in North Chicago, Illinois, will cut its overall effective tax rate from 22.6 percent last year to 13 percent in 2016 by reincorporating in Jersey, according to a regulatory filing Friday.

The U.S. corporate tax rate is 35 percent. Jersey is a well-known tax haven because it has a 0 percent standard corporate tax rate.

The AbbVie/Shire deal is among the largest of about 50 inversions over the past decade.

Treasury Secretary Jacob J. Lew wrote to top congressional tax writers this week urging them to take quick action to restrict the tactic, which he called an abuse of the U.S. tax system.


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