Editorials

Pfizer, Allergan merger hits US taxpayers

The Pfizer logo appears above a trading post on the floor of the New York Stock Exchange on Monday. Pfizer and Allergan are joining in the biggest buyout of the year, a $160 billion stock deal that will create the world’s largest drugmaker.
The Pfizer logo appears above a trading post on the floor of the New York Stock Exchange on Monday. Pfizer and Allergan are joining in the biggest buyout of the year, a $160 billion stock deal that will create the world’s largest drugmaker. AP

The pharmaceutical giant Pfizer was founded in 1849 by two German immigrants and cousins, Charles Pfizer and Charles Erhart, and it thrived early on as a medical supplier during the Civil War and a producer of penicillin for allied troops during World War II.

Now vastly enlarged by mergers and long removed from its roots, Pfizer wants to shield its profits from the nation that nurtured it. Pfizer wants to renounce its U.S. corporate citizenship by merging with a smaller, Dublin-based drug company, Allergan, a change that will make it a part of the Irish company and less exposed to U.S. corporate taxes. The tactic is known as a “corporate inversion.”

The $160 billion deal would create the world’s largest drugmaker. It would also create one of the world’s largest tax dodges.

It’s basically a paper switch in ownership – Pfizer’s headquarters and a large share of its operation will remain in the United States, and Pfizer CEO Ian Read will lead the combined company. But the token change will have a real effect – saving Pfizer, by its own estimate, $2 billion in U.S. taxes over the first three years. Pfizer says the change is a great deal for stockholders. But it’s a setback for U.S. taxpayers who will have to compensate for what the drug giant has found a way not to pay.

President Obama has rightly called these paper moves “unpatriotic.” Multinational corporations based in the United States benefit from the protection of U.S. patent law, are securely funded through the nation’s financial markets and develop new drugs from basic research supported by the National Institutes of Health and public universities. Yet Pfizer thinks it’s good business to evade paying their fair share to support a U.S. system that made its corporate success possible.

Pfizer is well aware that this deal and its numerous previous moves to dodge taxes are subject to charges on patriotic and fairness grounds. That’s why the company has inflated its tax burden under U.S. law by counting taxes on billions of dollars in profits it has parked offshore. It will not actually pay taxes unless the money is brought home.

Legislation to prevent U.S.-based companies from engaging in these tax dodges is urgently needed. Congress’ Joint Committee on Taxation estimates that the U.S Treasury will lose $33.5 billion over the next 10 years from U.S. companies becoming foreign companies on paper. Pfizer is doing all it can to control such legislation. Common Cause reports the company has spent $26 million on lobbying since 2013.

Popular and political backlash has stopped these inversions in the past, including a recent proposed merger between Raleigh-based Salix and the Italian firm, Cosmo Pharmaceuticals. Pfizer deserves a similar public rebuke and prompt congressional action to bar this drug company and others from evading the duty of all citizens, corporate and otherwise, to pay their fair share in taxes.

  Comments