Source: Rx LINE/flickr
The U.S. Treasury may have just derailed the mega $160 billion pharmaceuticals merger and corporate inversion between U.S.-based Pfizer and Ireland-based Allergan. A source on Tuesday said that Pfizer is leaning towards abandoning the deal in light of the Treasury’s new rules limiting corporate inversions. “They’ve addressed literally every benefit that one attempted to gain from an inversion and shut them all down systematically,” said Robert Willens, a New York-based tax analyst.
The merger would have moved the headquarters of the combined firm to Ireland, where the corporate tax rate is much lower than in the U.S. (See Blouin News’ recent post, Ireland: U.S. firms’ favorite new home.) But corporate inversions have come under fire from politicians and activist groups for essentially cheating the U.S. government out of much-needed tax revenue. According to advocacy group Americans for Tax Fairness, through Pfizer’s proposed merger with Allergan, it would be able to permanently dodge an estimated $35 billion in U.S. taxes owed on about $148 billion in profits it currently maintains offshore.
The U.S. needed to stem the rising tide of corporate inversions, so the new Treasury rules are welcome. Free-market purists would say the U.S. should lower its corporate tax rate and then firms wouldn’t have to seek savings abroad, but that idea would also deprive the Treasury of funds — probably a much larger amount. The current approach adds more red tape, but it will keep the firms on U.S. taxrolls. With the government’s deficit as large as it is already, every billion prevented from going abroad goes a long way.
