New rules established by the Obama administration to counteract U.S. companies from reducing their taxes through corporate "inversions" have already had an impact on several local companies.
Corporate inversions, which have reputedly cost the federal government billions of dollars in lost tax revenues, have become the new way to avoid taxes by merging with and becoming a wholly-owned subsidiary of a foreign-based corporation (see Corporate "Inversions" Mean You Pay More and Major Corporations Pay Less Taxes.)
The new rules, which will apply to deals not yet completed, restrict U.S. companies from accessing cash held by foreign subsidiaries, for which domestic taxes have not been paid, to finance mergers. The rules also require that U.S. shareholders of companies pursuing inversion deals own less than 80 percent of any combined company.
A major part of Pfizer's pursuit of AstraZeneca earlier this year was the potential for major tax savings. Other area companies that may have problems as a result of the new rules are Axilium, of Chesterbrook, Pa.; Shire, a Dublin, Ireland-based firm with U.S. headquarters in Wayne, Pa., and Endo, which had its headquarters in Malvern, Pa. for years before moving to Dublin after its purchase of Paladin Labs. After the new inversion rules were announced, the stock prices of several pharmaceutical companies involved in merger activity went down.