The pharmaceutical giant known as Pfizer is the latest industry giant to pursue the takeover of a smaller competitor in order to relocate their corporate offices overseas to avoid U.S. corporate taxation. In a transaction known as a tax inversion or “inversions” Pfizer is attempting to obtain Allergan, the maker of Botox among other industry leading products, for $150 billion dollars according to many media reports.
Allergan is headquartered in Ireland, which has one of the lowest corporate taxation rates in the world (17%) compared to the U.S. which depending on the size of the company is much higher (it is estimated that Pfizer has a taxation rate around 37%). I wrote an article for UPI previously on this topic when Walgreens mulled a shift of their corporate HQ to the UK and then disbanded the plan (http://www.upi.com/Top_News/Analysis/Outside-View/2014/07/25/Economic-patriotism-and-US-corporate-tax-inversion/6741406146830/).
This news comes amid the reports that the Department of Treasury is about to announce some changes in the rules for mergers and acquisitions which will make it more difficult for companies to complete these type of inversion transactions. The other political force at play here is the election cycle which the issue of inversions will be a hot topic for the 2016 Presidential campaign trail.
The argument made by Pfizer for the defense of this transaction and the justification for it has three different components:
- Pfizer will still be spending a ton of money in the U.S. on R&D, employee payroll taxes, and other business spending to boost the domestic economy
- The change in HQ to Ireland will allow them to more easily access the foreign currency accounts they have for the business they conduct in their overseas units.
- The Pfizer financial advisors have made statements to the media that the bigger issue to the antiquated U.S. tax codes and business regulations which create an environment in their words which is “uncompetitive”.
In fair balance, they make some valid points but the fact remains that Pfizer has joined the ranks of other large companies in the pharmaceutical space and beyond to move their headquarters out of the United States which really negatively impacts the American economy from several perspectives.
First, the government has to make up that gap in the tax revenues they will lose from that corporation (especially one the size of Pfizer) relocating. The next big issue is the loss of the jobs which are generally higher paying and suitable for candidates with a higher level of education. The recent unemployment reports will demonstrate that our domestic economy is lacking those types of higher paying jobs and that millions of people with college and advanced degrees are “underemployed” working several part time jobs to supplement the income of a full time position that does not exist.
It is also bad for the public perception of America to have these corporations relocate and that should be the impetus for Congress and the leaders of businesses to get together and forge some type of agreement that works for both sides to avoid these types of inversions in the future. We all have a vested interest in making America remain the best nation on Earth. We have to work together to make that possible in the future.