Funding of economic growth
aging
The US is immersed in a deceleration of growth. Between 1960 and 2007 – just before the Great Depression – the economy adapted to inflation increased more than 3% per year. The recession inevitably happened and growth slowed down, but the reductions were temporary and the economy always regained lost ground. Things changed after the 2007-09 housing collapse. Since then, the actual GDP growth has slowed to just 2%.
Decrease of growth is not predetermined. It is a result based on the policy that can be reversed by applying the right reforms. Toward this goal, a decision From the US Tax Court this summer made little but significant progress.
Undoubtedly, US tax law is boring, but the correct structure is critical. And part of this structure ensures that IRS firmly imposes the code without imposing arbitrary changes on some taxpayers.
Simplifying the case in 2014, Abbvy abandoned an agreed merger with Shire Plc and consequently paid the Irish company the $ 1.6 billion dissolution fee that AbbVie agreed to pay if the deal falls. These fees are typical merger and redemption features (M&A) and provide significant protection if the transaction collapses, which is happening.
Corporate mergers and acquisitions play an essential role in promoting economic growth. In the case of the pharmaceutical industry, the strong M & A activity helps maintain a live research landscape and allows both large and small medicinal products to focus on their comparative advantages.
Smaller biopharmaceutical companies are flexible and more business. Consequently, they have a comparative advantage in conducting new drug development. This research is expensive, inherently dangerous, but when it is successful, it leads innovation. Small biopharmaceutical companies can attract the financial resources necessary to finance R&D, because if the new treatment is successful, investors have the opportunity to earn a more market performance – without such a possibility, it makes no sense for investors to bring them.
Success is only achieved when the drug has gone through extensive and expensive clinical trials and has received approval from the FDA – and even then commercial success is not guaranteed. But taking the new treatment through clinical trials and the FDA approval process requires a set of skills that usually differ from the skills of the smaller business. That is why a living market for mergers and acquisitions is so important.
A live market for mergers and acquisitions transports the ownership of the potential drug to the largest company, which can then use its comparative advantage to cause new possible treatment through the rest of the drug development process much more effectively. It also rewards the original entrepreneurs for their ideas and dangers, letting them redeem. These returns this initial investors realize that they will then encourage future innovations.
The benefits of mergers and acquisitions are not only applicable to the pharmaceutical industry. M&A activity improves business efficiency and enhances productivity throughout the broader macroeconomics. Of course, not all mergers and acquisitions are successful. But a well -functioning market for mergers and acquisitions is a huge advantage for the US economy that helps promote overall economic growth.
And that brings us back to the Abbvie case.
Following the agreement with Shire Plc declined, Abbvie faced $ 1.6 billion as expense, which is the standard tax treatment for mergers and acquisition costs. The IRS claimed differently and under its novel and inappropriate treatment, the costs would have been categorized as a loss of capital and would increase the company’s tax liability by $ 572 million.
If left to stand, tax treatment will increase the expected costs and risks from possible mergers or acquisitions. At higher costs and greater risks, the amount of mergers and acquisition activity would be less. Fewer agreements would mean a reduced increase in productivity by resulting in impact on economic well -being and the slower overall increase in income.
To one concise decision Opinion, the Tax Court Judge Emin Toro supported AbbVie’s decision to confront the so -called $ 1.6 billion break at SHIRE PLC in 2014 as a usual discount. This decision is in accordance with the previous widespread position of the IRS that the dissolution fees are deductible business expenses under the tax law and are supported by numerous previous IRS decisions and judicial decisions. The tax court ruling brings back the IRS in accordance with these previous ones.
A stable regulatory environment is essential for providing incentives for strong economic growth – and this is true for the tax code. The June Court’s ruling confirms that tax treatment on dissolution fees will not change arbitrarily provides this stability in relation to the tax code. It is a positive sign that, if widely expanded, it will help recover some of our lost financial Mojo.
