The Globalization of Taxes

Globalization has been the result of many different developments. From the increasing ability to ship goods across the world at low rates to moving manufacturing to achieve lower labor expenses, globalization is an entrenched part of the new economy. Another element factoring into globalization, that is not mentioned quite as much but has played an increasingly large role, is that of taxes.

Most have heard of offshoring taxes, where people of significant wealth stash their money in places like the Cayman Islands, but companies do this all over the world to avoid high tax jurisdictions. This fact has come very public with the recent drama of Pfizer trying to buy AstraZeneca. While Pfizer is sure to like the successful business AstraZeneca can add to its portfolio, a main reason the company is being targeted so heavily by the firm is the tax relief that Pfizer could experience if the deal goes through.

Buying a company because of its address is not a trend that Pfizer is starting. The process is referred to as tax inversion, where the buyer of a company takes on the sellers foreign address. This has become extremely popular in cases involving Irish companies. With the low taxes that Ireland charges its corporations, it has become advantageous for huge multi-national firms to merge with companies headquartered there.

The future of this strategy is in question. Noticing the trend, lawmakers are starting to take aim at whether or not this type of deal structure should be allowed. The Senate Finance Committee of the United States has already had members speak out with suggestions to deal with tax inversion. Whether or not anything will come of this is unknown, but it is certainly in Pfizer’s best interest to get this deal done as soon as possible.