Pfizer Uses ‘Unpatriotic Loophole’ To Dodge Taxes

Pfizer will merge with Allergan to wiggle out of paying their fair share.

Pfizer Will Merge With Allergan To Wiggle Out Of Paying Their Fair Share

This morning, pharmaceutical companies Pfizer and Allergan announced they would complete a huge $155 billion merger that would create a super-giant pharmaceutical company. Though this move will be, as Pfizer says, “a great deal for shareholders,” this merger is bad news for American taxpayers. It will allow Pfizer to avoid paying tax on the $148 billion it has offshore and enjoy Ireland’s lower taxes, enabling Pfizer to receive a massive tax windfall.

Pfizer is able to dodge taxes through a tax maneuver known as a “corporate inversion.” An inversion allows a big, multinational company—in this case Pfizer—to buy a smaller company in a country with lower taxes and changes its legal residence to the lower-tax country. Corporate inversions, which President Obama calls an “unpatriotic loophole,” allows companies to have it both ways. Companies that undergo inversions can still use American infrastructure and benefit from American law and labor, but without paying U.S. tax on income that its investments generate outside the U.S—meaning they aren’t contributing their full share to support our programs, infrastructure, and workers. Since 2010, ten pharmaceutical companies have used inversions to shirk their tax responsibilities.

Under the deal that Pfizer and Allergan made this weekend, Pfizer will buy Allergan and then make itself a subsidiary of Allergan in order to shift the combined company’s corporate address to Ireland—where Allergan is headquartered and a country with a reputation as a tax haven for a number of American companies. But this is only the latest chapter in Pfizer’s history tax dodging.

To begin with, Pfizer claims to have a combined effective tax rate of about 25 percent, which it says is the highest among its peers in the pharmaceutical industry. But according to a new report by Americans for Tax Fairness, Pfizer’s claimed tax rate is “accounting fiction”: in reality, Pfizer’s effective tax rate in 2014 was closer to 7.5 percent. The reason? Pfizer had as much as $148 billion in profits abroad on which it has paid no U.S. income taxes at the end of 2014, and an accounting trick means Pfizer gets to claim it pays U.S. corporate income taxes on that money when in fact it hasn’t.

Pfizer isn’t struggling to make a profit. Despite a whopping 42 percent profit margin in 2013, Pfizer raised prices on 133 drugs this year alone. And, between 2012 and 2015, profits from price increases on drugs everyday Americans use allowed Pfizer to rake in an additional $1.07 billion.

Moreover, Pfizer benefits significantly from contracts with the United States government—meaning that Pfizer is pursuing a tax dodge even while taxpayer funding supports its business. Between 2010 and 2014, Pfizer made $5.3 billion from federal contracts. And like other pharmaceutical companies, Pfizer benefits greatly from the R&D tax credit.

However, there is something Congress can do to stop these corporate inversions. The “Stop Corporate Inversions Act of 2015” sponsored by Sen. Dick Durbin (D-IL) and Rep. Sandy Levin (D-MI), would prevent the tax benefits of an inversion if a company has its headquarters in the United States. The legislation requires that if the majority of a company’s shareholders are American, the company should be considered American. Pfizer’s original U.S. shareholders will own 56% of the merged company, so the Pfizer-Allergan corporate inversion would be blocked by this legislation.

BOTTOM LINE: This corporate inversion allows Pfizer to have it all—it can receive all of the benefits of an American company while avoiding its fair share in taxes. Corporate inversions fatten Pfizer executives and shareholders’ wallets while hurting American taxpayers. Congress should act to prevent this tax dodging.

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