Treasury Inversion Rules Already Impact Life Sciences Industry

October 15th, 2014

Earlier this year in June the United States (US) pharmaceutical spinoff of Abbott Laborites, AbbVie, announced plans to acquire drug-maker Shire PLC.  Although Shire declined several offers, AbbVie has been persistent in attempts to merge with the Ireland tax resident to achieve more favorable corporate tax rates by completing an inversion deal.

It appears, however, that AbbVie is reconsidering a potential merger following the Treasury Department’s recent actions to limit tax inversions.  On September 22, 2014, Treasury published a notice of proposed rulemaking to make inversions less attractive to US businesses. Treasury’s rules prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring US taxes, prevent the transference of cash or property from original entities to a new parent entity to avoid US taxes, and strengthen the requirement that former owners of a US entity own less than 80 percent of the new entity.

In light of these proposed changes, AbbVie said it would reevaluate the benefits of the acquisition of Shire. Shares of Shire fell 26 percent following AbbVie’s announcement.

Treasury’s proposed rules are likely to have their intended effect of limiting tax inversion deals in the future, as evidenced by AbbVie’s actions. The volume of inversion ambitions that emerged in the life sciences industry this summer is expected to disappear. Those proposed mergers include Medtronic and Covidien.  Pfizer, following failed attempts to acquire AstraZeneca in May, has also been considering the acquisition of Actavis PLC.


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