Pfizer, AstraZeneca, and taxation

You would have to have been living under a rock somewhere to have missed the news that Pfizer is looking pretty seriously at a takeover of AstraZeneca.

There may be many good reasons why drugs companies merge, but there are also incredibly bad reasons. In this case, I rather suspect we are looking at the latter kind.

Many commentators who know more about these things than I do have suggested that a large part of Pfizer's motivation is that acquiring a UK company will help to avoid tax liability. Something has gone seriously wrong if a tax regime is encouraging companies to engage in massive operations, such as a merger of 2 huge global pharmaceutical companies, that are not motivated by a realistic prospect of creating genuine economic value. This is an example of how corporation taxes encourage companies to do crazy things simply to avoid taxation.

I recently read a powerful argument about why corporation tax should be abolished. It doesn't actually create much net revenue for governments, and it massively destroys economic value as companies spend billions on activities designed for no other purpose than reducing their tax bill. Any country that was brave enough to go first in abolishing corporation tax would be richly rewarded with massive extra investment from companies all over the world, though no doubt other countries would then swiftly follow.

Seriously, wouldn't it be better if all the millions that will be spent on corporate lawyers and accountants were spent on something productive instead?