The chief executive of Abbott Laboratories has leapt to the defence of US companies moving their tax domicile abroad, as AbbVie and Mylan start looking to complete acquisitions allowing them to do just that.
Industry veteran Miles White has written an op-ed in the Wall Street Journal, noting that “inversions are legal. Not abuse. Not cheating”. His comments come just as Abbott is selling a portion of its generics business to Mylan, which will organise its new firm in the Netherlands, while AbbVie is doing a similar deal with Ireland-based Shire.
There is much debate in the USA about these moves, not least by the government. However Mr White says that “the raging debate about these decisions has been absurd, and people expounding on the topic are making wild claims that inversion is an abuse of the tax code, cheating and unpatriotic. It all makes for emotional and dramatic headlines and debate but ignores the facts”.
He states that inversion does not relieve any pre-existing tax burden, nor reduce the tax that any company would ultimately have to pay on past earnings overseas. What does change is a company's access to its future foreign earnings and this may be used for capital allocation, including investment in the USA, without the additional US repatriation tax.
Adding that the USA has the highest corporate tax rate in the world at 35%, Mr White notes it is the only country in the G7 that taxes companies on worldwide earnings rather than the profits in their home domiciles. “It's a double whammy: the highest rate, by far, and it's applied worldwide,” he writes, adding that “our disproportionately higher tax rate puts foreign companies at a huge advantage competitively, and their lower tax burden amounts to a subsidy that encourages them to acquire American businesses”.
Mr White also cited Mylan CEO Heather Bresch’s point that half of the low-cost generics prescribed in the USA come from foreign manufacturers. He concludes by saying that legislation to block inversion but “an attempt to trap US companies in an outdated and globally uncompetitive tax code that would benefit from fact-based, thoughtful, comprehensive reform”.