US crackdown on tax inversions, AstraZeneca and Shire hit

23rd Sep 2014 11:34

Pharmaceutical companies Shire and AstraZeneca sold off sharply this morning after the US Treasury announced a stricter crackdown against "tax inversion" deals than had been expected.Inversion deals are takeovers designed to reduce the amount of tax US companies pay by moving their headquarters offshore to lower tax jurisdictions.As the UK and Ireland have lower tax rates, they have attracted many deals, particularly in the pharmaceutical sector, namely after AbbVie's takeover of Shire and Pfizer's attempted take over of AstraZeneca.Though the crackdown was an expected policy move, the changes in legislation announced were far stricter than initially anticipated. The decision and will ultimately make takeover deals much less profitable for US firms."We're taking initial steps that we believe will make companies think twice," said US Treasury secretary Jacob Lew in a statement. "For some companies considering deals, today's actions will mean that inversions no longer make economic sense."The news could also affect the agreed takeover deal for AbbVie to buy uk pharmaceutical giant, Shire for $55bn."These first, targeted steps make substantial progress in constraining the creative techniques used to avoid US taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether," said Lew."While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem."As of 11:55 on Tuesday, AstraZeneca's share price was down 5.03%, whilst Shire's share price was down 6.20%.