The withdrawal by New York-based pharma giant Pfizer of a proposed merger with Irish company Allergan could save U.S. taxpayers billions. If the merger had been completed under the Treasury Department’s old rules, Pfizer could have dodged paying $35 billion in taxes on $150 billion in overseas profits. In 2014, Treasury revised rules to make it harder for corporations to use the process called “inversion” to avoid paying taxes in the United States. The AFL-CIO recently joined more than 50 organizations that sent a letter to the Treasury calling for stiffer rules on inversion so that companies are required to pay their fair share.
Frank Clemente, executive director of Americans for Tax Fairness, praised the failure of the merger:
The prevention of Pfizer’s inversion is great news for all American taxpayers: individuals, small businesses and large domestic corporations. Pfizer’s inversion would have meant that the pharmaceutical giant could have dodged as much as $35 billion it already owes in U.S. taxes on its offshore profits.
Big corporations like Pfizer must be required to pay their fair share. The government cannot let them run away from their responsibilities to this nation. Treasury has taken an important step to improve the overall corporate tax system. These rules move in the right direction to level the playing field for domestic companies competing with multinationals.
From the letter to Treasury:
Pfizer’s potential tax dodge is a huge sum of money—more than the $30 billion increase in domestic discretionary spending for the next fiscal year that was negotiated in the budget agreement last year, and which House Republicans are now demanding be paid for by cutting Medicaid and other health and low-income programs.
These companies can avoid paying the U.S. taxes they owe on their existing offshore profits through a so-called “hopscotch” loan, whereby the former U.S. firms can loan their offshore profits to their new foreign parent companies. Treasury prohibited such tax avoidance in its 2014 Notice when the new foreign company is at least 60% owned by the original shareholders of the former U.S. firm. But both Pfizer and Johnson Controls structured their mergers so that their shareholders own 56% of the new foreign company.
This blog originally appeared in aflcio.org on April 6, 2016. Reprinted with permission.
Kenneth Quinnell is a long time blogger, campaign staffer, and political activist. Prior to joining AFL-CIO in 2012, he worked as a labor reporter for the blog Crooks and Liars. He was the past Communications Director for Darcy Burner and New Media Director for Kendrick Meek. He has over ten years as a college instructor teaching political science and American history.
