Monday 5 December 2016

Obama claims massive scalp as Pfizer abandons tax move to Ireland

Published 07/04/2016 | 02:30

Pfizer admitted the decision to kill the deal was a result of new US Treasury rules. Photo: Reuters
Pfizer admitted the decision to kill the deal was a result of new US Treasury rules. Photo: Reuters

Drug giant Pfizer and Ireland-based Allergan walked away from a $160bn merger deal yesterday in what is a major victory for President Barack Obama in his fight to block US companies shifting their tax liabilities abroad.

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Pfizer admitted the decision to kill the deal - which would have created Ireland's biggest company - was a result of new US Treasury rules unveiled just this week.

The proposed merger of Viagra maker Pfizer and smaller drug producer Allergan - best known for its Botox anti-ageing treatment - would have created a new Irish-domiciled taxpayer.

Pfizer would have pocketed an estimated $1bn a year as a result of the deal, but Ireland would have gained from higher tax payments and income for law firms and accountants here, who play a crucial role facilitating the creation of new structures under Irish company law.

Pfizer and Allergan both have extensive operations here, which would have seen little if any changes had the deal gone ahead.

Pfizer has claimed tax savings from its move to Ireland would have financed investment, but now that the deal is off there is no expectation of operational changes or job losses.

The Irish tax system would have seen some financial benefits because the combined business would have paid tax on its global profits to the Irish Exchequer at our 12.5pc rate, instead of in the US, where the tax on profits is 35pc. President Obama's win means a wave of so-called tax inversions worth well in excess of €100bn that kicked off in 2014 may well be over for now.

The deals allowed a slew of US firms, including Allergan itself, Tyco and Medtronic to become Irish - "magically" as President Obama claimed - by buying a smaller Irish-registered rival and "inverting" into corporate structures here.

Those new taxpayers may be one reason corporate tax receipts here have been surprisingly strong and unpredictable in the past two years. The rules around inversions are complex but largely focus on how much of the new merged business must be owned by the US buyer in order for it be classed as foreign. The greater the US share of ownership, the less chance a company will be accepted as Irish by US tax authorities.

The tighter rules now in place crack down in particular on so called serial inverters, like Allergan, that are the result of more than one previous inversion in recent years.

Obama on Tuesday called global tax avoidance a "huge problem" and urged the US Congress to also take action to stop US companies from deals that allow it.

Previous changes to the inversion rules have sunk deals in the past. US drugmaker AbbVie abandoned a $55bn takeover of Ireland-domiciled Shire 2014 after an earlier crackdown.

The latest rule changes go deeper and also highlight a commitment to do more if needed.

Pfizer's decision to call off the Allergan deal came in part because it thinks any tweaks to salvage the deal might provoked further action by the Treasury, a source told Reuters. (Additional reporting Reuters)

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