White House refuses to step on Pfizer tax dodge

Reuters / November 23, 2015

Big Business-controlled government is all politically-correct talk and no action

U.S. politicians condemned Pfizer Inc's deal with Allergan Plc as a tax dodge on Monday, bringing another round of hand-wringing in Washington over the corporate tax code, though legislative action before 2017 is unlikely.

Democrats heaped the most criticism on the New York-based drug maker, with Hillary Clinton accusing Pfizer of using legal loopholes to avoid its "fair share" of taxes in a deal that she said "will leave U.S. taxpayers holding the bag."

The front-runner for the Democratic presidential nomination said she will propose steps to prevent more inversions, but she did not provide details. "We cannot delay in cracking down on inversions that erode our tax base," said Clinton.

Republican front-runner Donald Trump, who has called for a corporate tax overhaul, called the deal "disgusting."

Pfizer is doing the largest inversion deal of all time. In a $160-billion transaction, it plans to move its tax address from the United States to Ireland, if only on paper, by buying and merging into Allergan, a smaller, Dublin-based competitor.

The combined company will be called Pfizer and will be run by Pfizer's CEO, with executive management staying in New York and extensive operations across the United States, but it will no longer be taxed as a U.S. company.

More than 50 similar deals have been done over three decades by well-known companies such as Medtronic Plc, Fruit of the Loom and Ingersoll Rand Plc.

Congressional researchers have estimated inversions, left unchecked, will cost the U.S. Treasury nearly $20 billion in the next 10 years.

The White House declined to comment on Pfizer's deal, but a spokesman told reporters in a briefing that Congress should take action to prevent more such transactions.

The U.S. Treasury Department last week unveiled new rules to clamp down on inversions, its second attempt to do so since a wave of deals peaked in September 2014. But, the latest rules amounted to tweaks of existing law and will not impede the Pfizer-Allergan transaction.

Senator Bernie Sanders, Clinton's chief rival for the Democratic nomination, said the deal "would allow another major American corporation to hide its profits overseas."

Perhaps anticipating the deal would draw fire, Pfizer CEO Ian Read sent a letter on Monday to senior senators.

The letter said, "We will maintain our global operational headquarters in New York City. At the time we close the transaction, we will have over 40,000 employees across 25 states ... We will be gaining greater access to resources that will enable us to make significant investments in the U.S."

TAPING OFFSHORE ABROAD

Pfizer holds about $74 billion in profits offshore that, thanks to another loophole, it has not brought into the United States to avoid paying the taxes due under America's worldwide corporate tax system. As an Irish-domiciled company, it will have less costly access to those funds.

Representative Tom Price, one of few congressional Republicans to comment on Monday, said more Treasury regulations will not solve the inversions problem. "The only real solution to curbing inversions is tax reform," he said.

But Congress, divided over fiscal issues, is widely seen as unlikely to tackle a tax overhaul before the 2016 elections.

“Pfizer built their business on the back of our research and development tax incentives, our federally supported medical research, our skilled workforce, and our infrastructure," said Democratic Representative Rosa DeLauro.

"We cannot continue to allow Pfizer and other corporations to pretend that they are American while reaping the benefits this country has to offer, yet claiming to be another nationality when the tax bill comes," she said.

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Related reading:

US hands foreign companies tax advantage

The Financial Times / September 25, 2014

Now the Obama administration is making it easier for foreign companies to takeover U.S. companies. The U.S. government has handed foreign companies an advantage over American rivals because they will not be caught by new rules governing access to offshore cash.

U.S. Treasury Secretary Jack Lew went so far as to praise cross-border mergers done for business reasons for “encouraging foreign investment to flow into the United States”.

Mr. Lew is thrilled that U.S. companies are being acquired by overseas aggressors, resulting in the ongoing demise of America’s once world-leading industrial base, so long as foreign investment flows into the U.S.

The US has proposed new rules to discourage controversial mergers known as “inversions”, which American companies have used in part to gain tax-free access to earnings parked outside the U.S.

The US Treasury, referring to measures that make it harder to access offshore cash, says their actions are specifically targeted to inverted companies. They will not apply to foreign companies that acquire a U.S. business and its cash pile.

As a result of the measures, a US company’s offshore cash would become cheaper to access if it were acquired by a European rival than if the US company did an inversion.

Obviously, it shouldn’t matter whether the new corporate structure comes in the form of a new foreign acquirer or an inverted transaction. The fact is, there is attempted avoidance of US tax on the offshore earnings either way.

It’s no wonder the Treasury’s targeted steps have been praised by the Organization for International Investment, a trade group for foreign businesses in the US.

US companies are asking: “If we invert, why should we be at a competitive disadvantage to a foreign multinational that acquires a US company and is not subject to these inversion rules?”