But new Treasury rules announced on Monday, tightened the restrictions around so-called inversion deals in a way that would have made it hard for Pfizer to assume an overseas base in Ireland, where corporation tax is lower, following a merger with Allergan.
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Pfizer’s announcement confirmed that the decision was “driven by the actions announced [by Treasury] on April 4, which the companies concluded qualified as an “Adverse Tax Law Change” under the merger agreement”.
Pfizer agreed to pay Allergan $150 million to reimburse its expenses linked to the planned merger.
Via the merger with Allergan, the Ireland-based maker of Botox, Pfizer could have cut its tax rate as well as as gain control of “the billions of dollars in revenue it was keeping overseas to avoid paying USA taxes on top of the taxes it had already paid in foreign countries”, The Wall Street Journal reported today. That makes a tax inversion a whole lot less attractive as a concept.
“I think it was capricious, and to me, it appears to be very targeted at Pfizer and stopping this deal with Pfizer”, Mr. Saunders said.
While President Obama and political leaders recognize the shortcomings in the USA tax code, little will likely be done to change it. Analysts say the next president will have to tackle those changes.
For tax purposes, the original USA company is considered foreign-owned, even if all its operations and officials remain in the country.
The aggressive new rules have succeeded in blocking Pfizer from acquiring Allergan and moving to Ireland – at least on paper – to reduce its tax bill. The case of Pfizer Allergan marriage seemed particularly however caricature insofar Allergan is itself legally Irish that because of its use of such a maneuver in 2013.
The move comes one day after President Obama again criticized inversions, calling them “one of the most insidious tax loopholes out there”. Due to both of the companies’ massive size, the deal, had it pushed through, would have been the biggest merger in the pharmaceutical world to date.
USA effective corporate tax rates are among the highest in the developed world at around 40%.
The most recent inversion deal announced, a combination of market research firms IHS (IHS) and Markit (MRKT), should not be hindered by the new rules, the companies said in a joint statement.
The collapse of what would have been the biggest-ever inversion deal allows Obama to claim a major victory in his previous year in office. On Monday night, Pfizer and Allergan said in a joint statement that they were reviewing the notice and declined to speculate on whether the deal would go forward.
Companies shouldn’t have been surprised by the Treasury Department’s new regulations aimed at curbing corporate inversions because lawmakers have been working on legislation for years, Rep. Sander Levin (D-Mich.) told CNN Money.
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Pfizer is set to be thwarted for the second time in less than two years in its pursuit of a transformative, tax-powered deal to position it for long-term growth.
