The announcement by US pharmaceutical firm Pfizer and Ireland's Allergan of a $155 bn deal spurred an instant retaliation from presidential candidates, Bernie Sanders and Hillary Clinton. The deal is one of the recent takeovers in which a US company effectively relocates its headquarters overseas to exploit another country's lower corporate tax regime.
Pfizer would base in Ireland where Allergan holds its headquarters, if the deal is approved. The joined company will be renamed Pfizer PLC and continue to trade on the New York Stock Exchange. Analysts estimated that Pfizer's current tax, which is about 25 per cent, would drop below 20 per cent in Ireland. According to Congress Joint Committee on taxation, inversions will cost the US taxpayer $ 19.5 billion over the next 10 years.
Sanders posted on Twitter opposing the deal. He wrote, “This merger would be a disaster for Americans who already pay the highest prices in the world for prescription drugs.” He also said in a statement that, “The Obama administration has the authority to stop this merger, and it should exercise this authority.” While President Barack Obama called inversions “unpatriotic”, Clinton, in a statement said, “We cannot delay in cracking down on inversions that erode our tax base.” She also accused the pharmaceutical major of avoiding its “fair share of taxes.”
Meanwhile, Ireland finds itself in an even worse position as it already is dealing with an EU investigation of its tax regime. To dodge any more eyes on the country's tax policies, finance minister Michael Moonan said after the Pfizer deal that inward investment agency IDA Ireland, did not encourage inversions. US Treasury Secretary Jack Leno said, “US companies are currently taking advantage of an environment that allows them to move their tax residence overseas to avoid paying taxes in the US, without making significant changes in the nature of their overall operations.”
“While we intend to take additional action in the coming months, there is only so much the Treasury Department can do to prevent these tax-avoidance transactions. Only legislation can decisively stop inversions.”
Under the terms of the Allergan deal, the companies will exchange 11.3 Pfizer shares for every Allergan share. The deal also contains a cash component of between $6bn and $12bn. “The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world.” Allergan's chief executive, Brent Saunders said, “The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better.”
