Plans to Limit Tax Inversions Could Cut Profits for Wall Street & Raise Taxes for Life Science Giants

September 23rd, 2014

Treasury Department Secretary Jack Lew spoke at several events last week in conjunction with the G-20 meetings hosted in Australia during which he indicated that the agency was prepared to take actions to curb the volume of tax inversions.  The United States (US) has seen an increasing number of tax inversion deals in recent years as larger domestic companies seek to merge with smaller foreign competitors to relocate headquarters and receive corporate tax rates more favorable than the 35 percent domestic average.

The spring and summer of this year saw several major tax inversion moves in the life sciences industry, most notably Pfizer’s attempt in May to acquire United Kingdom (UK) based AstraZeneca. Pfizer’s and other companies’ proposed mergers have attracted considerable scrutiny from US regulators, but Congress has been slow to act.

In response, it appears that the Obama Administration and Treasury are preparing to take executive actions.  At a speaking event at the University of California, Los Angeles (UCLA), Secretary Lew said the administration plans to act “very, very soon” in the “very near future” to make it more difficult for US companies to complete such mergers.  Secretary Lew urged Congress to take up the issue as well, saying “if [Congress] doesn’t enact tax reform, [they] need to enact legislation that shuts the door on inversions.” The issue of inversions was also raised during Secretary Lew’s remarks at the G-20 meetings, where he said that the US would pursue the use of “business tax reform” and “anti-inversion provisions.”

These announcements do more than signal a hostile M&A environment for domestic companies seeking relaxed taxes. Wall Street has also enjoyed an increase in revenue off of the preparation of tax inversion deals.  In the past three years, the five biggest firms in the business, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup, and Greenhill & Company, have seen $610 in profits from assisting companies with inversions.


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