Pfizer's tax-driven Allergan merger
The boards of pharma giants Pfizer and Allergan have given the thumbs up to a merger worth $160 billion.
It’s an example of a so-called corporation inversion, where a U.S. company hooks up with a foreign corporation to benefit from its address and the lower tax rate that comes with it.
“U.S.-based corporations have to pay tax overseas to the country in which they're doing business and back to the United States when they bring the money back,” said Kyle Pomerleau, the director of federal projects at the Tax Foundation. He says that gives foreign companies an advantage, as they don’t have similar requirements and therefore benefit from much lower tax rates.
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“The combination only leaves the Pfizer shareholders with 55 or 56 percent of new company, not the 60 percent threshold that’s required to trip these anti-inversion rules,” he said.
“It’s who owns how much of the company that counts,” agreed Erik Gordon, a professor at the University of Michigan Ross School of Business.
But while the new company will keep Allergan’s Irish home, Gordon said it’ll look at lot like the current Pfizer. “The new company will change its name to Pfizer,” he said. “Pfizer is still going to be run from 42nd Street in New York.” It’ll also keep Pfizer’s CEO and stock symbol.
Gordon says to truly crack down on inversions, Congress would need to reform the tax code.