Commentary

Pfizer's Pitch: Tax-based Deal Is Good For U.S.A.

Now that the $160 billion merger of Pfizer and Allergen is a done deal absent the expected approvals from shareholders and regulators, the public relations battle over the forthcoming transfer of the new entity’s tax headquarters from America to Ireland, where Allergan is based, is fully engaged. 

“First of all, I would like to say this is a great deal for America,” Pfizer CEO Ian C. Read told CNBC’s Meg Tirrell in a joint sit-down with Allergan CEO Brent Saunders yesterday morning. “It allows us to continue to sustain an investment of approximately $9 billion mainly spent in the United States. We have 40,000 combined employees in the United States. So I think it's a great deal.”

In fact, Read has been making calls to Washington lawmakers in recent days with the same “surprising message,” Michael J. de la Merced, David Gelles and Leslie Picker report in the New York Times:  “A deal that would allow the company to move its headquarters to Ireland was actually good for the United States,” he has been telling administration officials and legislators.

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Read’s pitch is that the merger “would significantly cut Pfizer’s tax bill and give it more cash that it could invest in the United States and ultimately add jobs, according to people briefed on the calls,” they write. 

“The new deal technically is structured with Allergan acquiring Pfizer, even though … [It] is far smaller than its New York City-based merger partner,” points out Kevin McCoy in USA Today. “Allergan shareholders would own 44% of the new company while Pfizer investors would own 56%. Pfizer's ownership share would fall below the 60% threshold to qualify as a tax inversion under the U.S. tax code,” according to international tax law expert Robert Willens.

“If it's not 60%, it's not an inversion,” Willens tells McCoy, adding that Treasury officials “may not care for [the deal] but there's not a lot they can do about it.” 

Writing in the New Yorker, John Cassidy says the Obama administration, lacking a legal cudgel, should “shame” Pfizer’s board into calling off the merger:

“The Pfizer–Allergan deal will be the biggest inversion yet, and it is nothing short of a disgrace. Drug companies like Pfizer have long benefitted from taxpayer-funded research carried out under the auspices of organizations like the National Institutes of Health and the National Science Foundation. Now, Pfizer is seeking to avoid paying the taxes that are due on its profits, particularly profits generated by its overseas subsidiaries.”

A few of the presidential candidates weighed in, with the Dems generally excoriating Pfizer and the Trump taking aim at the politicians themselves. 

“This proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag,” said Hillary Clinton.

“The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting,” quoth Donald Trump in a statement to Business Insider, writes Colin Campbell, who reminds us that Trump “has repeatedly vowed never to eat Oreo cookies again to protest Nabisco moving a plant to Mexico.”

But Trump is blaming U.S. tax policy rather than the company, as he did in an interview on Bloomberg Politics' “With All Due Respect,” writes David Knowles. 

“There is no way you can stop it, really, other than lowering the taxes because right now ... it is prohibitive to bring that money in,” Trump said. “They'd have to pay so much, they'd have to be fools to bring it in.”

In an article examining attempts to reach an agreement on reforming the tax code, the Wall Street Journal’s Richard Rubin points out that “U.S. companies face a 35% corporate tax rate — the developed world’s highest — on all income they earn around the world. In contrast, many other governments tax companies only on income generated within that country. American companies get tax credits for payments to foreign governments and can defer the remaining U.S. tax until they bring the money home.”

Slate’s Jordan Weissmann calls Pfizer’s move “a bit of a middle finger to the Treasury Department, which just last week announced a new set of rules specifically designed to discourage inversions.” 

But, absent the sound and fury of politicos — and just-plain folks who also feel they could stimulate the economy if they paid less in taxes — it doesn’t amount to a heck of a lot more than “paying a projected tax rate of about 17 or 18%, down from Pfizer's current 25%” in the long run, he reasons.

“… It's not as if Pfizer is uprooting all of its factories and R&D and moving them to Dublin, too. As Matt Gardner, executive director of the Institute on Taxation and Economic Policy, put it earlier this month, ‘An inversion by Pfizer would very likely amount to pretending to be Irish, much like the Notre Dame mascot,’” Weissman writes.

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