Question

In the case of Allergan and Pfizer, there are two sovereign powers in play - Ireland and the United States. Why was Ireland interested in letting the inversion take place, and why was the U.S. government against the inversion? IS the decision by the United States a direct affront to the sovereignty of Ireland?

Answer 1

Solution

Allergan and Pfizer belonged to the Ireland and the US repectively.

Ireland wa interested in letting the inversion taking place because it results in more Foreign Direct Investment for it.More the FDI (Foreign Direct investment) means more economic growth and more employement.Ireland has been following a policy of keeping the corporate rate taxes in order to attract more investment from abroad.

The US on the other hand was againt this inversion because it will be loosing it's tax revenue.The US believes that eventhough it'scoporate tax rates are high it provide all it's companies with a concducive environment including facilities that include support for research and development,superior infrastructure facilities,protection to intellectual property rights,etc.,When the businesses are able to make use and benefit from these facilities provided by the US it is correct for them to relocate to other countries to avoid paying higher taxes.

No,the decison of the US is not a direct upfront to the soverignity of the Ireland.The companies are just taking the advantage of the policy differentials of the 2 countries.If the US does not want their companies to relocate to other low tax countries then they should impose strict laws / constraints on the companies that prevent them in doing so.For Example,the incumbent president Donald Trump did the same with many companies.

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