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On Monday, Pfizer-Allergan deal made headlines since the move was on the course to create the world’s largest pharmaceutical company. But in the meantime people started wondering whether Pfizer’s $160-billion merger deal was nothing more than another attempt to dodge U.S. taxes by taking refuge on Irish soil.
For Allergan, the deal was deemed ‘highly strategic,’ as its CEO Brent Saunders put it. In the U.S., Pfizer must pay about 26 percent in taxes, while Ireland has the lowest corporate taxes in the Europe after Switzerland.
So, after some calculations, Pfizer seems to save $2 billion worth of taxes by 2018 after the company establishes its headquarters in Ireland’s capital city from where Allergan ran operations. In Ireland the company will have to pay only a 17 or 18 percent tax.
While calculations may seem clear, the ethics of such merger are unclear. Other U.S.-based companies merged with a European one to move their headquarters abroad and be taxed less heavy. The move is called ‘corporate inversion’ and although it may seem immoral, it is borderline legal. On paper, corporations are now foreign companies but in reality they continue to run operations and own important assets in the U.S.
Most companies involved in such inversions said that the move was necessary to improve operations, but in the meantime their tax bills also shrank. And the practice is becoming increasingly popular in the corporate world.
In 2014, the U.S. Treasury Department pledged that it would take measures to prevent companies from making inversions. As a result, the agency issued new rules on ownership percentage and solved an issue that allowed corporations to fend off U.S. corporate taxes.
But the Pfizer-Allergan merger fueled ongoing debates over the immorality of avoiding taxes. People also asked for an urgent tax reform for corporations. A news outlet called the recent merger deal a ‘disgrace’ because Pfizer had based its research on U.S. taxpayer money and the wits of U.S. scientists. Both Democratic and Republican presidential hopefuls bitterly criticized the deal, while some members of Congress proposed a tax reform.
Some analysts, however, noticed that the fault lies not with the two companies but with the laws that allowed such deal to happen. It is in a company’s best interests to maximize profits and, thus, shareholder returns. And if the law allows it why not go for it?
Lawmakers are now planning either to lower corporate taxation or opt for a wholesale revision of taxes owed by corporations.
Image Source: Flickr
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