Pfizer Buying Allergan So It Can Pretend To Be Irish In Tax Scam

The pharmaceutical corporation Pfizer will acquire pharmaceutical corporation Allergan in a deal valued at $160 billion. My colleague Richard Eskow called this combination of Pfizer (the maker of Viagra) and Allergan (the maker of Botox) "a merger of false desire and false beauty."

More to the point, this deal is structured as an "inversion" designed to dodge U.S. taxes. Allergan (itself the product of a similar inversion) is headquartered in New Jersey but for tax reasons is incorporated in Ireland -- a tax haven. After the acquisition, Pfizer will keep its headquarters in New York but change its corporate address to Ireland.

In other words, the resulting merged company will make and sell products in the same places it makes and sells them now. The same executives will occupy the same buildings. It will receive the same taxpayer-funded U.S. services, infrastructure, courts and military protection that it receives now. But the company will now claim it is "based" in tax-haven Ireland and thereby dodge U.S. taxation.

It's A Tax Dodge

This deal is entirely about dodging billions of tax dollars. The Washington Post Wonkblog explains, in "Pfizer and Allergan to merge in $160 billion inversion":

"Gustav Ando, research director for IHS Life Sciences, a business information and consulting company, said ... 'This merger isn't meant to benefit patients; it isn't meant to innovate in any kind of way. It's basically a tax inversion strategy, and certainly the benefits won't be passed on to consumers,' Ando said. 'It's pretty easy at the moment to paint the pharmaceutical industry in a negative light and this certainly doesn't do anything to help the cause. It definitely increases the reputational risks to the industry."

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A Rigged System

Corporations receive immense benefits from operating in the United States. The United States provides the most well-developed business-enabling environment in the world, a strong customer base, a highly educated workforce, a developed infrastructure, patent and copyright protections, an advanced legal system and courts, police and other protections, military protection, government-funded scientific research, and so much more.

Corporations also get a lot of business from our government. Pfizer got $5.3 billion in federal contracts between 2010 and 2014. And Pfizer makes $1 billion a year from selling drugs to Medicare, Medicaid and other U.S. government programs. About 5 percent of Pfizer's $20 billion annual U.S. revenue comes from the federal government and taxpayer dollars.

But corporations and shareholders enjoy lower tax rates than regular people do. The people who make a gain from trading corporate shares get a special, lower capital gains tax rate. (This capital gains tax rate is lower because the wealthiest make most of their income from capital gains, and the wealthiest make most of their income from capital gains because the capital gains tax rate is lower.)

And then, on top of that, corporations are able to lobby and otherwise use their immense wealth and power to influence our legal and tax system.

This is another example of how we have a rigged tax system, filled with loopholes and breaks that benefit wealthy CEOs and the 1 percent shareholders at the expense of the rest of us.

Pfizer Also Uses Deferral Loophole -- $148 Billion Stashed Offshore

Pfizer reported that it lost an average of $3 billion in the U.S. but made $15 billion each year offshore over the last five years. But Pfizer had 40 percent of its sales and 50 percent of its assets in the U.S. in 2014. It looks a lot like Pfizer is engaged in schemes that make it appear as if its profits are really earned in tax havens rather than in the U.S. As a result of this kind of shifting, Pfizer currently has approximately $148 billion in untaxed profits stashed offshore on which it has paid ZERO U.S. income taxes. (See also The New York Times and Los Angeles Times.)

It is highly likely that this inversion will enable Pfizer to dodge ever having to pay the taxes it owes on the approximately $148 billion of taxable profits it has kept out of the country. At the U.S. tax rate of 35 percent, this represents a tax-revenue loss of up to $51.8 billion that other taxpayers will have to make up for. It also provides Pfizer a substantial advantage over other companies that focus on innovation and serving customers instead of engaging in schemes to dodge taxes.