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U.K. Crowned Leader for Inversion Seekers

Inversion is by no means a new strategy for big businesses in avoiding high corporate taxes. However, the country to which companies are now moving is the dark horse known as the United Kingdom.

For decades, Ireland was the destination of choice for inversion plans for U.S. companies, but after dozens of across-the-aisle negotiations within the British government, the U.K. corporate tax dropped to 20%, a dramatic difference from their 28% in 2010.

Although Ireland's tax rate remains lower than the U.K. at around 12.5%, companies like AbbVie find that doing actual business is more realistic elsewhere.

One of the biggest steals from Dublin came from AbbVie's acquisition of Shire. The Chicago-based pharmaceutical giant says that product diversity, not the tax breaks, is the driving force behind the merger. However, the company's swift relocation to Jersey, U.K. might suggest otherwise.

Britain's experts claim the new trend is based on the need to keep the U.K.'s existing corporations staying put and not considering other European tax havens like Finland and Poland. Aside from the obvious tax benefits, U.S. companies tend to favor English-speaking countries, making employee relocation more attractive and logical.

Another point of attraction is how differently the U.K. operates its "corporate-governing structure" from the U.S. Companies can keep their original headquarters in places like Ireland and pay those low rates, while still operating in the U.K., whereas United States-incorporated companies must pay United States-imposed taxes.

AbbVie is not the only big business relocating abroad, which arouses concern amongst U.S. economists and the President alike. Recently, Mr. Obama made it a point that he does not condone companies who are "cherry-picking the rules" and that inversion as a whole is just wrong. Obama might have ulterior motives, but experts emphasize Britain's new taxing state as a warning for the future. As easy as it was for Parliament to lower the rates, it can just as easily spike them back up again.

Source: The Wall Street Journal, "In Inversion Deals, U.K. Is a Winner," Tom Fairless and Shayndi Raice, July 28, 2014.

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