Log In


Reset Password
News Education Local News Nation & World New Mexico

Seeking tax dodge, Pfizer flees to Ireland

Drugmaker’s megamerger with Allergan sparks outcry
Pfizer and Allergan will join in a $160 billion deal to create the world’s largest drugmaker. The move will make Pfizer an Irish company and save the firm a projected $33.6 billion over a decade because of Ireland’s lower corporate tax rate.

A $160 billion megamerger announced on Monday would turn U.S. pharmaceutical behemoth Pfizer Inc. into an Irish drug company, using a controversial tactic that allows companies to dodge billions of dollars in corporate taxes by renouncing their U.S. citizenship.

Pfizer’s deal with Botox-maker Allergan, which would create the world’s largest drugmaker, immediately sparked criticism from Democrats and Republicans in Congress who agree that such deals are problematic but have so far not taken legislative action against them. They slammed the tax loophole called an “inversion,” in which a U.S.-based company buys or merges with a foreign company and moves its headquarters to the country with a lower tax rate.

“By nominally moving overseas while continuing to take all the benefits of a U.S. company, Pfizer is gaming the system and will avoid paying its fair share of U.S. tax dollars,” Senate Minority Leader Harry Reid, D-Nev., said in a statement. “It’s time for Congress to get serious, close the loopholes, and prevent these kind of inversions from happening in the future.”

Republicans also denounced the deal, which would slash Pfizer’s corporate tax rate to 17 percent or 18 percent, according to company leaders, compared to its effective 25 percent rate. But some were reluctant to place the blame on companies.

“Other nations have restructured their tax code to make themselves more attractive to multinational corporations and we must do the same so American businesses can compete on a level playing field,” said Rep. Patrick Tiberi, R-Ohio, a senior member of the tax-writing Ways and Means Committee.

In a call with analysts on Monday, Pfizer chief executive Ian Read said company leaders had paid attention to the political debate around inversions but decided to proceed with the deal because it was a good business move.

“On the political risk, we’ve assessed this deal looking at the present regulations, the new notices and all the information we can glean, and we believe this deal is a great deal for shareholders, both of Allergan and Pfizer,” Read said.

A 2014 estimate by Congress’s Joint Committee on Taxation projected that inversions will cost the United States $33.6 billion over a decade.

Last week, the Treasury Department announced new measures that make it less financially attractive for a U.S. company to move its headquarters to a country where it does little business. But Pfizer, currently based in New York City, and Allergan carefully crafted their deal to sidestep federal efforts to curb inversions.

Allergan, which is about half the size of Pfizer as measured by annual revenues, is technically buying Pfizer – even though the new company will be named Pfizer, it will be led by Pfizer’s chief executive, and 11 of the 15 board members will come from Pfizer. The president and chief operating officer will come from Allergan.

Allergan’s current shareholders will ultimately own 44 percent of the combined company, while Pfizer shareholders will own 56 percent, a division of ownership structured to avoid triggering additional taxes. Federal rules subject inverted companies to more taxes if the shareholders of the U.S. company own at least 60 percent of the shares.

The final combined company is expected to generate an operating cash flow of more than $25 billion by 2018.

While there’s broad agreement that action should be taken to curb inversions, politicians disagree on how it should happen. Republicans have argued that curtailing tax inversions should be part of comprehensive tax reform, but Democrats have pushed for immediate action while a broader overhaul of the corporate tax code is worked out.

Lawmakers remain at odds over whether and how to lower the corporate tax rate of 35 percent, one of the highest rates in the world. Both sides have also acknowledged that addressing the problems in the complicated tax code will take time, which will become more difficult as the presidential election draws near.

A Treasury spokesman said the agency does not comment on specific transactions. In a conference call last week, Treasury Secretary Jacob Lew acknowledged the agency’s limitation in ending inversions.

“Our actions can only slow the pace of these transactions. Only legislation can decisively stop them,” Lew said in the conference call. “There is only so much Treasury can do to prevent these tax-avoidance transactions.”

Edward Kleinbard, former chief of staff of the Joint Committee on Taxation, agreed that the Treasury Department has limited power to stop corporate tax dodging.

“Treasury is trying to hold back the tide with a broom, but that is an unfair position into which to put Treasury. The U.S. Congress owns the tax code,” he said. “What is going on here is a dereliction of duty by Congress, and Treasury is doing the best it can in an impossible situation.”

Allergan is best known for making the wrinkle-smoothing treatment, Botox, while Pfizer is well known for making a wide variety of iconic drugs, including cholesterol-lowering Lipitor, the antidepressant Zoloft and the erectile dysfunction drug Viagra. The companies expect to save $2 billion over the first three years by eliminating redundancies.



Reader Comments