Considering a deal sweetened with Irish tax advantages? You might want to consider waiting--or at least checking with a Dublin tax lawyer. Tired of a flogging from foreign governments outraged by multinational companies' low-to-zero tax bills, Ireland may shut a popular loophole.
The potential rules change, reported by The Wall Street Journal, comes after a couple of high-profile trans-Atlantic pharma deals. NJ-based Actavis ($ACT) bought Dublin-based Warner Chilcott ($WCRX) and Allegan, MI-based Perrigo ($PRGO) snapped up Ireland's Elan ($ELN)--and in both cases, the Irish tax system played a role. And as these companies announced their tax-advantaged deals, other Irish drugmakers, including Shire ($SHPG), have come in for deal talk.
It also follows a big brouhaha in the U.S., when news emerged that Apple ($AAPL) had paid no corporate income tax on tens of billions in overseas income. Other U.S. companies had also avoided hundreds of millions in taxes by recording profits elsewhere, including Ireland.
Some drugmakers not only record profits and house patents in Ireland, but also operate plants, R&D facilities and business operations centers there, with hundreds of employees. Others don't occupy so much real estate. As the Journal reports, one office building in Dublin houses the headquarters of several hundred business units of at least 125 U.S. companies, many of them clients of a law firm that specializes in the Irish code. Among them are 5 subsidiaries of Abbott Laboratories ($ABT) and two belonging to the company's recent pharma spinoff, AbbVie ($ABBV).
Also among them now is Actavis, which says it uses the law firm address for official correspondence. The company points out that it and Warner each operate plants and R&D facilities in the country. But Actavis has been quite open about the tax advantages of gaining an Irish domicile. Actavis estimates its tax rate will drop to 17% from 28% over the next few years.
It's not clear just how the tax laws might change, or how the change would affect foreign drugmakers. Some experts figure that, in the end, international companies wouldn't pay much more in taxes. Indeed, Irish Finance Minister Michael Noonan told the Journal that the proposed changes were developed with input from companies affected by them.
So, Actavis may well realize its expected tax savings. So might Perrigo; CEO Joseph Papa estimates his company's tax rate could fall to the high teens from a current 30% or so. The company could end up saving some $150 million a year, mostly from the tax advantages, Perrigo said at the time.
Whatever happens, don't expect Actavis to move its top management to that Dublin address. On an earnings call earlier this year, CEO Paul Bisaro said he and his team would stay put in the States. "Everybody loves New Jersey too much, so nobody is willing to go," he said.
- read the WSJ piece (sub. req.)
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