A new report from a tax fairness group claims Pfizer's ($PFE) Allergan ($AGN) merger will help it dodge $35 billion in U.S. taxes--and while some experts doubt that figure's accuracy, it's spurred some members of Congress to urge a further crackdown on companies that shift their tax bases abroad.
Four members of the U.S. House of Representatives are using a report from Americans for Tax Fairness as a platform to push for the Obama administration to withhold tax benefits to corporations who move their tax addresses overseas, Bloomberg reports. While the U.S. Treasury has already tightened the reins twice on tax inversions, their proposal would envelop Pfizer as well; as part of its plan to bypass governmental hurdles, the company structured its transaction so that smaller, Ireland-based Allergan will technically be the one buying it.
According to ATF's analysis, Pfizer can "permanently avoid" up to $35 billion in taxes on offshore profit, the news service says. ATF based that tally on two of the New York pharma giant's disclosures--one that as of 2014, it had a deferred tax liability of $21.1 billion; and the other that it has about $74 billion in overseas earnings that it's stashing there indefinitely.
The way ATF sees it, if Pfizer repatriated those funds at a foreign tax rate it estimates at 18.7%, it would result in a $13.8 billion tax--which, added to the $21.1 billion deferred tax liability, rings up at about $35 billion.
But that number is "probably a little misleading," tax and accounting consultant Robert Willens told Bloomberg--in part because there's no evidence Pfizer would ever actually return its offshore earnings to the U.S. It'll likely be able to continue evading the deferred $21.1 billion sum if its deal for Allergan goes through, though, he noted.
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| Wharton accounting and tax professor Jennifer Blouin |
Another expert, Wharton School of Business accounting and tax professor Jennifer Blouin, told the news service that it's "quite misleading" to imply a $35 billion revenue loss to the U.S. Treasury since Pfizer's doesn't imminently owe its deferred tax liability.
"ATF thinks that in the absence of the Allergen transaction that $35 billion will be coming to the Treasury," she told the news service. "Nope, not going to happen."
Pfizer, for its part, has maintained that it needs the move--and the lower tax rate it affords--to stay competitive with its peers. And the merger is "not structured to move jobs out of the United States, where we conduct the majority of our research," spokeswoman Joan Campion told Bloomberg. Instead, it'll create a "global, R&D-focused company."
Special Reports: The top 15 pharma companies by 2014 revenue - Pfizer | Pharma's top 10 M&A deals of 2014 - Actavis/Allergan - Actavis/Forest Laboratories | The 25 most influential people in biopharma in 2015 - Brent Saunders - Actavis
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