WHEN Pfizer announced its plan last year to merge with Botox-maker Allergan and move its headquarters to Ireland, the company said the deal would lower its tax rate to about 17 to 18 per cent, saving it about $2 billion over three years.
But in a report published Thursday, Americans for Tax Fairness says the New York-based pharma giant will save much more by giving up its US citizenship: $35 billion.
Pfizer is merging with the smaller, Dublin-based Allergan in what is known as an “inversion,” in which US companies are bought by or merge with foreign firms in order to reduce US corporate tax burdens. The Pfizer-Allergan deal is the largest inversion and has raised angst among lawmakers.
In addition to lowering its effective tax rate from about 25pc, Americans for Tax Fairness notes that Pfizer will gain access to $148 billion in profits it earned overseas and currently cannot bring back to the United States without taking a tax hit. Bringing the cash would have cost the firm $35 billion, according to the left-leaning advocacy group.
“We believe the Treasury Department can challenge the theft of taxpayer dollars that Pfizer is counting on under this deal,” said Frank Clemente, the group’s executive director.
A Pfizer spokesman was not available for comment, but Ian C. Read, Pfizer’s chairman, told analysts last month: “We feel confident the transaction is fully within the US law and fully within accepted interpretation of that law, and expect the transaction to close in the second half of next year.”
Lawmakers have grown increasingly frustrated by the flood of US companies moving overseas to lower their tax rate. Pfizer’s announcement was followed by one from Johnson Controls, which said last month that it would merge with Tyco and move its headquarters to Cork, Ireland. Johnson Controls said the strategy would save the new company — with a market capitalization of about $36 billion — about $150 million a year in taxes.
This week, two Democratic lawmakers proposed legislation meant to attack one of the chief benefits of inversions, a practice known as “earnings stripping.” In addition to lowering its tax rate, a company involved in an inversion can often offset taxes with the interest from debt payments made by its US operations to its foreign parent company.
The legislation by Rep. Sander M. Levin of Michigan, the top Democrat on the Ways and Means Committee, and Rep. Chris Van Hollen of Maryland, the top Democrat on the Budget Committee, would make that maneuver more difficult and less profitable.
Earnings stripping “enables them to significantly lower the amount of taxes they pay in the US, while taking advantage of our country’s resources and strong workforce,” Levin said.
Bloomberg-The Washington Post News Service
Published in Dawn, February 28th, 2016
