News Column

A cheap way to give shareholders more profit: well done, chancellor

July 20, 2014



Shortly after entering No 11 as chancellor for the first time, in 2010, George Osborne went to the CBI annual dinner and told Britain's foremost business figures that he wanted to create the most competitive corporate tax regime in the world. Four years on from that speech, his strategy is bearing fruit - in a less than palatable way.

AbbVie's takeover of Shire is a marriage that exploits all Osborne has to offer and gives nothing back. AbbVie is a Chicago-based pharmaceuticals firm that, like so many US corporations, was looking for a takeover target in a low-tax country to allow it to escape the heavy hand of the IRS.

The US charges corporation tax at up to 40%. The UK's headline rate is 21%, heading for 20% in April. Once the deal is done, the firm will be run out of Chicago, with London its domicile for tax purposes. It will hire some London lawyers, accountants and other professionals, but little will alter on the corporate wallchart. Shire does very little research and development in the UK, and AbbVie is unlikely to change that. Most of AbbVie and Shire's business is done in the US. Britain is just a cheap way to channel profits to shareholders with the minimum interference.

Osborne won praise from those business leaders for his bold move to simplify company taxes, cutting the headline rate and limiting complex reliefs. However, his efforts will be undermined if the companies cashing in refuse to bring jobs and investment.

He says the project is only just under way, and soon firms will be flocking to the UK for more than just tax reasons. However, the Pfizer debacle shows he could be made to look a fool. The US giant bid for AstraZeneca for the same tax benefits, only to walk away after a political fight beckoned.

If others are waiting in the wings there could, unless MPs are ready for a battle over tax, be more US firms based in the UK, cutting their tax payments, and leaving the chancellor with some explaining to do.



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Source: Observer (UK)


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