James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Possible Pfizer inversion raises questions among lawmakers
Author: James F. McDonough
Date: May 16, 2014
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U.S.-based pharmaceutical company Pfizer has offered to buy British competitor AstraZeneca for $99 billion, according to The New York Times. In buying the company and moving its headquarters to Britain, Pfizer could avoid U.S. corporate tax liability on its income outside of the the country. Currently, the company pays an effective tax rate of approximately 27 percent – much higher than the British corporate income tax rate of 21 percent.
There are at least 50 American companies that have undergone the controversial inversion process, in which a U.S. company merges with a smaller foreign company in order to enjoy lower tax rates, almost half of which have occurred in the last two years, according to the news source. If successful, however, Pfizer would be the largest and best-known company to do so.
“Pfizer is the Coca-Cola of health care. It’s as American as apple pie,” Mark Schoenebaum, an analyst with the ISI Group, told the news source. “If there is a deal that is going to start a real dialogue in Washington, it might be a company like this.”
Such a move would result in the loss of tax income from the company for the U.S. government, which amounted to about $2.87 billion last year, Reuters reported. This has sparked serious concern from American lawmakers on both sides of the aisle.
“This further demonstrates the urgency for tax reform,” a spokeswoman for Democratic Sen. Ron Wyden, chairman of the tax-writing U.S. Senate Finance Committee, told the news source. “Now is the time to undertake comprehensive reform to ensure our country stays competitive on a global stage and continues to be the best place for corporate investment.”
The Obama administration included a proposal in its 2015 budget to more seriously regulate deals like the one that Pfizer is attempting, according to Reuters. With Congress deadlocked on tax issues, however, the proposal is unlikely to gain any real ground.
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