AbbVie defends plans to shift tax residence to UK

Administrative base will remain in Chicago, listing in New York, but residence in UK

AbbVie defended plans to shift its tax residence to the UK after agreeing to buy Shire for £32 billion and urged US politicians to consider comprehensive tax reform rather than trying to block American companies from moving offshore.

Richard Gonzalez, chief executive of the Chicago-based drugmaker, said the trend for US companies to use foreign acquisitions to pursue so-called “tax inversions” was a symptom of wider problems in the US tax system. “At the moment we’re at a disadvantage to other [international] companies,” he said, referring to the high US corporate tax rates levied on cash repatriated from overseas. “That is the important debate we should be having about inversions and the whole . . . US tax code.”

AbbVie won the recommendation of Shire’s board for its £52.48-a-share cash-and-stock offer for the UK-listed speciality pharmaceuticals company after a month-long pursuit.

In a letter to Congress, Jack Lew, US treasury secretary, urged lawmakers to act immediately to prevent more companies from pursuing tax inversions.

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But Mr Gonzalez said Washington should focus on how the tax system was acting as a deterrent against US multinationals bringing overseas revenues home. “Companies like ours need access to cash flows and need to be able to make investments around the world but particularly in the US,” he said in a conference call with investors and media.

AbbVie said that, while its main administrative base would remain in Chicago and its listing in New York, the merged entity would be incorporated in Jersey in the Channel Islands and have its tax residence in the UK.

This was projected to reduce its average tax rate from about 22 per cent to 13 per cent by 2016.

Analysts said legislation to clamp down on inversions is unlikely this year, but concern over political risks to the deal prompted Shire to negotiate a hefty “break fee” of at least $500 million, which must be paid by AbbVie if the acquisition breaks down under certain circumstances.

AbbVie will pay Shire £24.44 in cash and 0.8960 in shares for every Shire share owned.

This would give Shire shareholders about a quarter of the merged entity.–(Copyright The Financial Times Limited 2014)