September 4, 2014 11:23 AM
AstraZeneca Called the Obama Team to say: Stop Those Tax Inversions!!
By ED SILVERMAN
Sean Kelly
If you were wondering why the White House suddenly took an interest in the consequences of tax inversion deals last spring, here is the reason – a pair of Wall Streeters with ties to the Obama administration made some calls on behalf of AstraZeneca which, you may recall, was trying to fend off an unwanted bid from Pfizer. Pfizer cited a tax inversion as one reason for its offer.
Specifically, AstraZeneca employed Thomas Nides, a Morgan Stanley vice chairman who was deputy secretary of state in the Obama administration until last year, and who also served in the Clinton administration. The drug maker also tapped Roger Altman of Evercore Partners, a former deputy Treasury Secretary in the Clinton administration, according to The Wall Street Journal.
In a tax inversion deal, a U.S. company buys a foreign company and reincorporates headquarters overseas where corporate taxes are lower. Why? As the Journal notes, the acquiring company can reduce taxes by adding debt to its U.S. unit and shifting profits overseas. The tactic is not new, but has been accelerating, especially among drug and device makers, as investment bankers peddle the advantages.
The Pfizer bid for AstraZeneca did not pan out for other reasons, but the outreach by Nides and Altman, among others, prompted the Obama administration to decide that inversion deals are not a good idea, at least for the U.S. Treasury. As the Journal writes, the White House “went from being a mostly passive objector to the architect of still undisclosed policies aimed at curtailing the tax benefits” of inversions.
Next week, Treasury Secretary Jacob Lew is expected to make a speech about overhauling business taxes, underscoring White House concern about inversion deals after receiving calls from corporate America that more such deals were likely. The latest example popped up this week: Burger King wants to buy the Tim Horton food chain that is based in Canada and move its headquarters there.
The Journal, by the way, notes that both Nides and Altman disclosed they called on behalf of AstraZeneca. A spokeswoman for the drug maker says part of its strategy to thwart Pfizer was to engage “with Washington stakeholders in the appropriate way as we would do with governments and policy makers in the countries in which we operate.”