Strategy & Operations » Governance » Pfizer-Allergan deal fans tax row flames

Pfizer-Allergan deal fans tax row flames

Tax inversions row reignited after Pfizer makes move for Ireland-based Allergan, in a record deal that could create world's largest pharmaceutical

THE CONCLUSION of a record-breaking deal between pharmaceutical companies Pfizer and Allergan has been labelled a “disaster” by US Democrat presidential candidates Bernie Sanders and Hillary Clinton amid fears it could resurrect the prospect of tax inversions.

The $155bn (£100bn) deal is set to create the world’s largest drug company by sales and is likely to prompt an international row over corporate tax avoidance.

The White House has long sought to curtail so-called tax inversions by large US companies, which sees the businesses shift their headquarters overseas in order to take advantage of the favourable tax conditions in other jurisdictions.

The tactic is primarily motivated by the disparity between the US’s high 35% corporate rate and the UK’s 20% rate, brought in by the coalition to attract additional business to the UK.

Last year, Pfizer’s attempted takeover of AstraZeneca failed, but was at least in part motivated by tax. Similarly, San Francisco-based hedge fund Marcato contemplated a move for Intercontinental Hotel Group which would bring with it a UK tax base.

Provided the latest deal is approved, Viagra manufacturer Pfizer could shift its tax base to Ireland, where Allergan is headquartered.

Effectively, Pfizer is seeking a reverse takeover of Allergan, which makes Botox, with the smaller company buying New York-based Pfizer, the Guardian reports. Following the sale, the combined company will be named Pfizer PLC and continue to trade on the New York Stock Exchange.

Pfizer’s current tax rate is about 25% and would drop below 20% in Ireland, analysts estimate.

Despite the growing list of American brands officially moving abroad – including Canada-based Burger King and Ireland-based Chiquita – will face political pressure.

President Barack Obama has already denounced inversions as unpatriotic and has urged congress to stop them.

“They’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share,” Obama said at the time.

“This merger would be a disaster for Americans who already pay the highest prices in the world for prescription drugs,” Sanders posted on Twitter after the news of Pfizer’s move emerged.

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