If Pfizer is successful in acquiring U.K.-based AstraZeneca, its plan to redomicile there will save it millions in corporate taxes. The tax arbitrage scheme, called an inversion, creates a holding company in the foreign country with the lower tax rate. Britain's corporate tax rate is 21% (20% next year) which is substantially lower than the U.S.'s top rate of 35% (up to 40% when state and local taxes are included).
About 24 U.S. companies have employed this strategy since 2008. Ireland, Canada, Switzerland and the Netherlands are also popular destinations for redomiciling.
According to Reuters, many of the m&a deals this year have been driven, at least in part, by tax inversions.
Predictably, investment bankers are working feverishly to generate deals in various industries that take advantage of the loophole before Congress acts to close it.
Some lawmakers say that the best solution is to reform the U.S. business tax code.
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