Channelizing mergers and acquisitions will not accelerate economic growth

Financial trains economic growth

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The US is micled in a deceleration. Between 1960 and 2007. – Just before the Great Recession – the economy adapted to inflation increased by more than 3% per year. The result inevitably happened and slow down growth, but the sensors were temporary, and the economy has always recovered the lost country. Things have changed after the loavage of housing 2007-09. Since that time, real GDP growth slowed by barely 2%.

Slowing growth is not destined; It is an outcome guided by a policy that can be reversed by implementing the real reform. According to this goal, a judgment The US Tax Court of this last summer made a small but significant progress.

Undoubtedly, the American tax law is passing boring, but getting the structure is crucial. And part of that structure is to ensure that IRS consistently implements code without imposing arbitrary changes at certain taxpayers.

Simplifying the case, return to 2014. ABVIE has left the agreement with the Shire PLC and consequently paid an Irish company of $ 1.6 billion that Abbvie agreed to pay for the agreement to break through. Such taxes are standard characteristics of merging and acquisitions (M & A) and provide important protection if the transaction falls apart, which is happening.

Corporate M & A activity plays an essential role in driving economic growth. In the case of the pharmaceutical industry, the Robust M & A activity helps maintain live research landscape and enables both small and small pharmaceutical people to focus on their comparative advantages.

Less biopharmaceutical companies are nimbler and more entrepreneur. Consequently, they have a comparative advantage in the implementation of the new development of the drug. This research is expensive, inherently risky, but when it is successful, initiates innovations. Small biopharmaceutical companies can attract the necessary financial resources to be a simple sense of investors to make investors that investors have little sense of investors to make the investors make a little sense of investors to be small meaning.

Success is achieved only when medicine has passed extensive and expensive, clinical trials and received the approval of the FDA – and even then, commercial success is not guaranteed. But obtaining a new treatment through clinical trials and the FDA approval process requires a set of skills that are usually different from the competence of a smaller firm. That is why the nervous M & A market is so important.

The mercy M & A market transforms ownership of a potential drug in a higher company, which can then use its comparative advantage to direct a new potential treatment through the rest of the drug development process much more efficiently. It also rewards original entrepreneurs for their own insights and risks, letting them cash. Returns These original investors understand that they will then encourage future innovation.

Advantages of M & A does not apply only to the pharmaceutical industry. The M & A activity improves operational efficiency and improves productivity throughout the wider macroeconomics. Of course, not all mergers and acquisitions are successful. But good functioning M & A market is a huge advantage for the American economy that helps lead general economic growth.

And that returns us to the AbbVie case.

After the agreement with the Shire PLC passed, Abview treated $ 1.6 billion as a cost, which is a typical tax treatment for M & A price. The IRS was otherwise claimed under its novel and inappropriate treatment, costs would be categorized as a loss of capital and would increase the company’s tax liability for 572 million dollars.

If it is allowed to stand, tax treatment would increase the expected costs and risks of potential mergers or acquisitions. With higher costs and higher risks, the amount of M & A activity would be less. Fewer offers would mean reduced productivity growth resulting in the impact on economic prosperity and slower total revenue growth.

In a Summary judgments Opinion, Judge of the Tax Court Emin Toro supported ABBVIE’s decision that the so-called breaks of $ 1.6 billion paying Shire PLC in 2014. as a regular deduction. This decision is in line with the previously long term position of the IRS to disintegrate the costs of deductible operating costs according to the American tax law on US tax and support numerous critical judgments of IRS and court decisions. The decision of the Tax Court returns IRS in accordance with these precedents.

The stable regulatory environment is necessary to encourage robust economic growth and for the tax code. The June court decision confirmed that tax treatment on decay fees will not be arbitrarily changed, provides this stability in terms of the tax code. It is a positive sign that, if widely expanded, will help vomit some of our lost economic mojo.