Nick Shaxson ■ Why companies put together for tax reasons will be fragile


A while ago we explained how tax avoidance by multinational corporations is like refined sugar in the human body: empty financial calories with adverse long-term health effects.

Now we have an article from Financial Times columnist John Gapper, who has looked at the tax-arbitrage nonsense driving the proposed Pfizer-AstraZeneca deal, and has reached very similar conclusions to us in our recent blog on the matter. As Gapper nicely puts it:

“Companies put together purely for tax reasons – with no industrial or cultural logic behind them – will be fragile. Of course, no company will admit to it when it suggests a deal.”

Quite so. He notes, just as we did, that tax engineering is becoming as important a factor in multinational mergers as corporate logic. And he adds:

“There is surely something wrong with this. Investors can of course benefit from big mergers involving “tax inversion”, whereby US companies break the surly bonds of the Internal Revenue Service. But this does not create stronger enterprises or bring wider economic benefits. The notion of “shareholder value” becomes distorted when it means “tax breaks”.

We couldn’t have put it better ourselves.

All this nonsense is corrupting capitalism, with nothing useful in terms of productivity or genuine economic efficiency to show for it, and much in the way of increased inequality, the subversion of democracy, and the rest of it.

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