PRESIDENTIAL CANDIDATES HILLARY Clinton and Donald Trump have reached a rare consensus: neither is at all happy about Pfizer waving goodbye to the US for these shores.
Yesterday the pharma giant confirmed it had agreed a $160 billion (€150 billion) reverse merger with Botox maker Allergan, creating the world’s largest drug company by revenue.
The ‘inversion’ deal would include the newly created company, to be called Pfizer PLC, shifting its tax base to Allergan’s domicile in Ireland, although the firm’s operational headquarters would remain in the US.
Predictably, the reaction on the other side of the Atlantic to the latest – and greatest – in a series of similar corporate moves was one of outrage. The US government has introduced measures to minimise the controversial inversions, but seemingly with little success.
In a statement, Democratic frontrunner Clinton vowed to reform the tax system to “reward growth, innovation and job creation here in the United States”, adding the country couldn’t delay in “cracking down on inversions that erode our tax base”.
“For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes,” she said.
Now Pfizer is trying to reduce its tax bill even further. This proposed merger, and so-called ‘inversions’ by other companies, will leave US taxpayers holding the bag.”
Real estate mogul-turned presidential wannabe Donald Trump labeled the move “disgusting” as it would apparently come with a “tremendous” loss of US jobs at Viagra manufacturer Pfizer.
Our politicians should be ashamed,” he said.
The other Democratic nominees also took aim at the deal, which followed a warning from Pfizer head Ian Read last month that he was “fighting with one hand tied behind (his) back” under the US tax regime.
The top nominal corporate tax rate in the US is 35%, but the effective average rate companies are charged is thought to be more like 20%.
Pfizer expects the relocation to shave its effective tax bill to between 17% and 18% of profits in the first year after the merger, down from more than 25% at present. That would be enough to save the company $1 billion (€940 million) annually.
The Irish Times calculated the move could be worth €620 million to the Irish exchequer based on Pfizer’s current international revenues.
However that figure is based on the unlikely scenario that all the income is booked in the Republic and the company pays the full 12.5% corporate tax rate, rather than relying on some profit-shifting chicanery to further slice its bill.
Not a tax haven
Speaking on his way into a cabinet meeting this morning, Agriculture Minister Simon Coveney said that “nobody is using Ireland as a tax haven”.
“Ireland has a very competitive tax regime, but it’s a transparent tax regime,” he said.
Companies do come to Ireland for lots of reasons, one of them is they pay a very a competitive rate of tax here, the other is that they get very good people here, the third is we speak English here.”
Pfizer and Allergan have a combined workforce of over 6,000 people in Ireland across eight sites.
Fianna Fáil finance spokesperson Micheal McGrath said the deal will put Ireland back in the spotlight “in terms of corporation tax internationally” but said there are potential benefits for the country and that anger in the US is to be expected.
He said: “But the US can also help itself by changing their own corporation tax system. They have a rate of 35%. They have a system whereby they cannot levy corporation tax on a multinational unless profits are repatriated back to the United States.
So if the Senate and the Congress could get their own house in order and agree to reform and modernise their own corporate tax rate then this type of arrangement would not be occurring.”
Meanwhile on MarketWatch, a subsidiary of Dow Jones, economics commentator Tim Mullaney said the deal was “funded, in no small part, by the American taxpayer” because of the huge amounts poured into Pfizer by federal schemes like Medicare and Medicaid.
Let’s face it: The tax-inversion problem is concentrated in the drug and medical-device industry, which is responsible for more faux Irishness than anything this side of St Patrick’s Day and Notre Dame football,” he wrote.
Meanwhile New York-based business news site Quartz had this more-poetic take on the whole affair:
- additional reporting from Nicky Ryan and Hugh O’Connell