A tax watchdog organization, Americans for Tax Fairness (ATF), recently released a report charging New York-based pharmaceutical company Pfizer with $35 billion in tax dodging via its upcoming merger with Allergan. Pfizer is expected to move its headquarters to Ireland, where Allergan is currently located.
Is the Pfizer Merger a “Tax Inversion?”
Allergan is the pharmaceutical company behind the popular anti-aging treatment Botox, while Pfizer makes drugs like Viagra and Lipitor. When the companies announced the $160 billion merger, experts called it a form of tax inversion – a stock transaction designed to save Pfizer from a large portion of US taxes.
ATF Report Findings
ATF describes itself as a progressive tax reform coalition. Tax reform, the ATF believes, “requires big corporations and the wealthy to pay their fair share in taxes, not to live by their own set of rules.” Some of the ATF report findings:
- Changing Pfizer’s headquarters to Ireland is “largely a change of address” designed to avoid US taxes while the company is still managed from New York.
- Pfizer has been “aggressively raising prescription drug prices.”
- Pfizer could potentially dodge about $35 billion in taxes.
Pfizer’s Tax Strategy
Pfizer has been underpaying taxes for a number of years, according to the ATF report.
- Pfizer reported to the Securities and Exchange Commission (SEC) that it had tax liability on “unrepatriated foreign earnings” in 2014 to the tune of $21.2 billion.
- The organization Citizens for Tax Justice claims that Pfizer also owes another $14 billion on offshore earnings it had reinvested.
To put the sum of $35 billion in context, that same amount could keep the National Cancer Institute going for seven years.
Rising Drug Prices
In addition to tax maneuvering, US taxpayers have also had to contend with Pfizer’s rising drug prices.
- Since 2012, Pfizer has increased the price of its best-selling prescription drugs by 39% – while the average inflation rate over the same time period was only 1.7%.
- That 39% price hike was four times the overall prescription drug inflation rate of 9%.
- Pfizer has employed delaying tactics like patent litigation to keep generic versions of its drugs off of shelves so that its branded drugs can continue to command a high price long past the expiration date of the patent.
Criticism of the ATF Report
Some experts are criticizing the ATF report about the Pfizer merger. They argue that even if Pfizer’s headquarters remained in the US, the company wouldn’t be paying $35 billion anyway.
Companies only pay taxes on profits brought back to the US. Experts say that reinvesting those profits in the US is unlikely in the case of Pfizer’s overseas profits, which make up the majority of its tax liability. Pfizer’s 2014 annual report indicated that its overseas earnings are “intended to be indefinitely reinvested overseas.”
Even so, critics of the ATF report admit that Pfizer will lower its effective US tax rate from about 25% to 17% in the years that follow the merger with Allergan.
Pfizer Says the Merger Won’t Impact US Jobs
Pfizer released a statement about the impact of the merger, saying that it “is not structured to move jobs out of the United States, where we conduct the majority of our research.”
Since the announcement of the merger on November 15, 2015, Pfizer stock has declined from $31.33 to $29.70 (a loss of -5.2%), its lowest point since mid-October 2014.
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