AbbVie Inc. and Allergan plc. announce that the companies have entered into a definitive transaction agreement under which AbbVie, headquartered in US, has acquired Allergan on June 24, 2019. By that, one of US's pharmaceutical giants is coming back to the U.S. partially.
In 2015, Allergan plc. underwent a complicated transaction known as a corporate inversion, in which it was acquired by Actavis, a smaller Irish drug maker, to escape the U.S. tax net. Allergan continued to be managed from New Jersey but was able to use its Irish address for tax purposes, where the corporate rate is 12.5%.
Allergan’s income will generate some U.S. taxes because of a deal announced Tuesday for AbbVie Inc. to acquire the Dublin-based company, even though it will remain in Ireland.
The merger makes Allergan a special type of entity, known as a controlled foreign corporation. The company will likely have to pay a new tax in the law on what is known as global intangible low-taxed income (GILTI). AbbVie currently pays well below the new 21%, and it will have an effective rate of 9% this year. Its future rate will rise to only 13%.
The GILTI tax is a guardrail levy intended to prevent large pharmaceutical and technology companies from shifting their profits outside the U.S. and into lower-tax countries. The law taxes U.S. companies with “excess” profits from overseas subsidiaries in countries with rates lower than about 13%. Irish subsidiaries, like Allergan, will be following the deal’s completion, will likely pay some GILTI tax.
Even paying taxes to foreign countries, such as Ireland, and some GILTI tax to the U.S., the company can end up with lower overall tax bills than if they fully operated in the U.S..GILTI tax is an “incentive” for companies to chase foreign assets.
But, there remains a significant amount of political risk within the U.S. in relation to whether there could be a change in the U.S. leadership that may result in some increases to the corporate tax rate in the future.
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