Tax Inversion Considerations

TAX INVERSION
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Subject: Tax Inversion Considerations
Based on the research, though the potential tax savings from a tax inversion to Switzerland are substantial—given that the corporate tax rate is only 5%—it is also essential to consider other factors. For example, in the current climate, companies face heightened public scrutiny regarding their tax arrangements (What Are Inversions, and How Will TCJA Affect Them? 2020). As detailed in the PwC report, tax has become a reputational issue, with the public increasingly interested in whether companies are paying their fair share (PWC, 2013). Consequently, relocating the combined company's domicile to Switzerland could result in unfavorable public perception and regulatory backlash.
A tax inversion is not without risks. One notable example is the attempted merger between Pfizer Inc. and Allergan Plc in 2016. The merger would have allowed Pfizer to move its tax domicile to Ireland, where the corporate tax rate is significantly lower. However, the US Treasury Department released new rules that made the inversion less advantageous for Pfizer, and the merger ultimately fell through. Additionally, the Tax Cuts and Jobs Act of 2017 included provisions that discourage companies from shifting profits overseas, such as the Base Erosion and Anti-Abuse Tax (BEAT) and the Global Intangible Low-Taxed Income (GILTI) tax (Pilkington, 2015). In response to the public backlash, Pfizer CEO Ian Read wrote an op-ed in the Wall Street Journal defending the merger as a strategic business decision.
Another recent example is the failed inversion of Walgreens, a victim of the TCJA made by the U.S. corporate tax rate. In 2014, the company proposed a merger with Alliance Boots, a European pharmacy chain, which would have allowed Walgreens to move its tax domicile to Switzerland. However, the TCJA's changes likely influenced Walgreens' decision ...