U.S. Drugmaker AbbVie Merges with British Firm to Slash Tax Bill

AbbVie's purchase of Shire will allow it to shift its legal home to the UK and cut its tax bill.
AbbVie’s purchase of Shire will allow it to shift its legal home to the UK and cut its tax bill.

Drugmaker AbbVie announced an agreement on a $54.7 billion merger with Britain’s Shire designed to slash AbbVie’s tax bill by moving its legal home out of the United States.

The deal, which has been in the works since May, is controversial because it is the latest attempt by the company to cut its U.S. corporate tax bill through a merger.

The announcement said AbbVie (ABBV) will cut its effective tax rate to about 13% by 2016 from 26% in 2011. The combined company will keep its operational headquarters in Chicago, and continue to have its shares traded in New York, even though its legal home will be in the United Kingdom.

A U.S. company can’t simply relocate to nations with lower tax rates to avoid U.S. corporate taxes. To get the lower foreign tax rate, it must use a process known as “inversion,” in which a merger leads to a foreign partner owning more than 20% of the stock in the combined company.

Treasury Secretary Jack Lew this week urged Congress to act to prevent the move by U.S. companies.

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SOURCE: Chris Isidore 
CNN Money

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