Presidential Contender Asks the U.S. Treasury to Block Pfizer’s Major Tax Evasion
March 21, 2016
By Alex Keown, BioSpace.com Breaking News Staff
WASHINGTON – U.S. Sen. Bernie Sanders, who is seeking the Democratic presidential nomination, called on the U.S. Department of the Treasury to block Pfizer (PFE)’s plan to relocate overseas as part of its merger with Allergan (AGN) in order to cut its tax burden. Sanders called Pfizer’s inversion maneuver a “tax scam.”
On Friday, Sanders urged Treasury Secretary Jack Lew to use his “untapped authority” to prevent the merger, something Sanders said would preserve $35 billion in tax revenue for the U.S., citing a study from Americans for Tax Fairness. In his letter to Lew, Sanders said the new company would still primarily be an American one, as it will continue to be managed from its U.S. headquarters and a majority of shares will still be owned by Americans. In addition to calling on Lew to exercise his authority, Sanders also called on Congress to enact legislation that would “tax such a corporation as an American one, and thus end the scourge of corporate inversions.”
Inversion is a method where American firms are acquired or merge with smaller foreign-owned corporations and relocate as part of an effort to reduce U.S. tax burdens. As the Pfizer/ Allergan deal has been proposed, Pfizer’s executive management will remain in New York and the company will keep operations across the United States, however, Pfizer will no longer have to pay taxes as a U.S. company. The deal, which technically has Allergan acquiring Pfizer and shifting Pfizer’s domicile to Dublin for its lower tax rate, has an enterprise value of about $160 billion. According to news estimates, Pfizer reports paying an effective rate as high as 27.5 percent recently and in Britain would pay no more than 20 percent, about one billion dollars in savings annually.
In April 2015, before the Pfizer Allergan deal was in the works, Pfizer Chief Executive Officer Ian Read said the U.S. Tax Code puts U.S. companies at a disadvantage to foreign companies. The U.S. federal corporate tax rate is 35 percent with an average of 4.1 percent added by states, makes the rates the highest in the world. Loopholes in the law can lower some of the rates for companies.
Pfizer’s move to Ireland will not only free up capital due to the lower taxes, Pfizer will also have access to monies it keeps offshore that it has not brought back to the U.S. in order to avoid the tax hit. The Washington Post said Pfizer has access to approximately $148 billion in profits offshore.
In his letter, Sanders said Pfizer and other large corporations should not be allowed to avoid paying their “fair share” of taxes. Sanders said it makes fiscal sense for the Treasury secretary to take action and it would also serve as a “deterrent to other companies that are contemplating similar tax scams.”
Pfizer said the merger with Allergan will enhance the company’s research and development capabilities in both new molecular entities and product line extensions. A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term. Pfizer said the merger with Allergan will enhance the company’s research and development capabilities in both new molecular entities and product line extensions. A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term.