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UK tax regime attracts business takeovers from abroad

Further hostile takeover attempts, similar to that of AstraZeneca attempted by US pharmaceutical Pfizer earlier in the year, are likely to take place as foreign businesses seek to take advantage of the UK’s attractive corporate tax regime. The UK’s headline rate will be 20% from next April, compared with 35% in the US.

Meanwhile, the government has sought to increase the country’s attractiveness with tax incentives such as the Patent Box – a 10% tax regime for profits from UK and other European patents – and Research and Development tax credits.

Baker Tilly tax partner, George Bull, said:

“Like it or not, UK governments over the last decade have constructed a tax system which, although it may not cause the acquisition of British crown jewels by overseas investors, certainly encourages such. Although the bid is not being driven by tax considerations, these do play an important part in the structure and timing of the deal. At a stroke, Pfizer can use profits accumulated outside the USA – and not yet taxed in the USA – to acquire AstraZeneca and by reorganising under a new UK company, can permanently avoid high US taxes on such profits.”

Shareholders in UK based companies like AstraZeneca, might see the short-term attractiveness of profit to be made from a successful acquisition strategy from overseas. However concern for the future continuity of dividends, profitability and indeed the very survival of any UK bit sucked into a larger US corporation, could be very persuasive that the long term investment future of the UK business is not very attractive.

If shareholders are in for medium to long term returns on investments, they might also look with some scepticism at any UK Government assurances and guarantees around acquisitions from abroad, that stand for less than five years. Should we in the UK be concerned that such acquisitions might not be about growing a business portfolio but more about removing a successful competitor from the international marketplace?

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