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US draft bill could scupper more Pfizer-style tax moves

US LAWMAKERS have drafted a bill aimed at preventing US companies redomiciling outside the States through mergers and acquisitions in order to drive down their tax bills.

As suggested in Accountancy Age earlier this week, it is understood the move is unlikely to gain much political traction on Capitol Hill over the next year.

However, it is designed to at least have a chilling effect on other companies contemplating manoeuvres similar to Pfizer’s bid to acquire UK pharmaceutical rival AstraZeneca, which will allow it to ake advantage of Britain’s 20% corporate tax rate.

The cases of Starbucks and Google have shown us that US multinational companies will circle funds between subsidiaries around the world, but stop short of repatriating the cash, instead allowing it to accumulate in an offshore jurisdiction with favourable tax rate, such as the Cayman Islands or Bermuda.

“We just simply cannot wait for tax reform to stop this bleeding,” veteran Michigan senator Carl Levin told the Financial Times. “We risk more American companies opting out of the US tax base.”

Levin chairs the Senate permanent subcommittee on investigations and has made tax avoidance by large companies his top priority in recent years.

Alongside Levin, 13 other Democrats launched the bill, including prominent liberals such as Elizabeth Warren of Massachusetts and Dianne Feinstein of California.

The bill would impinge on redomiciling for tax purposes for two years by raising the threshold of foreign share ownership required for such a deal to be structured from 20%to 50%.

That measure would then allow the US government to produce more substantive legislation to address the elements of the country’s tax code driving business away.

It also includes a retroactive feature, covering deals that are struck after May 8 2014, meaning Pfizer’s bid for AstraZeneca would be taken in, although that move hit a stumbling block over the weekend.

But the proposal lacks Republican backing, with senator Orrin Hatch airing concerns.

“I share my colleagues’ concerns about the number of inversions that have taken place over the past few years. However, I do not believe that imposing confusing and arbitrary retroactive restrictions on US companies is the answer,” Hatch said in the FT.

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