Pfizer deal in doubt as Obama blasts US firms' Irish tax moves
Published 06/04/2016 | 02:30
Barack Obama has pushed for greater action to stop big US companies shifting their tax base to Ireland and other low-cost nations.
A planned $160bn merger of drugs giants Pfizer and Allergan has been thrown into doubt after the latest crackdown on so-called corporate tax inversions.
The controversial deal, in the works since last summer, would create Ireland's biggest company by shifting Pfizer's global tax base to Ireland.
The deal and others like it have provoked an angry backlash in America.
Last night US President Obama urged his country's Congress to take action to stop US companies from taking advantage of tax loopholes that allow them to avoid paying taxes.
"When companies exploit loopholes like this... it sticks the rest of us with the tab and it makes hard-working Americans feel like the deck is stacked against them," Mr Obama told reporters at the White House.
He said wealthy corporations and individuals should not be "gaming the system".
The US levies a 35pc tax on corporate profits, compared to the 12.5pc rate here. With no real disadvantages to leaving the US it has become attractive for companies to shift their domicile abroad - including by buying smaller off-shore rivals. US authorities have tried but so far failed to block that process, known as corporate inversion.
Inversions allow companies to slash tax bills by redomiciling outside the US, including here, even if their core operations and management stays in the United States.
Mr Obama, a Democrat, has repeatedly said action is needed by the Republican-controlled US Congress to prevent the practice.
On Monday the US Treasury Department took its most decisive action yet to crack down on inversions. The move threw a number of proposed mergers into doubt, including Pfizer's $160bn agreement to buy Dublin-based Allergan. "I want to be clear. While the Treasury Department's actions will make it more difficult... to exploit this particular corporate inversions loophole, only Congress can close it for good," Mr Obama said.
The US President has previously said that tax inversions are unpatriotic.
Up to now lawmakers have been a step behind lawyers and accountants in trying to shut the loopholes that allow inversions.
But the new tax regulations proposed by the US Treasury Department on Monday threw current deals into doubt.
That includes the Pfizer takeover and a proposed $16.5bn merger of Johnson Controls, a US maker of car batteries and ventilation equipment with industrial giant Tyco International - which like Allergan is officially domiciled in Ireland.
Pfizer and Allergan said in a joint statement that they were reviewing the Treasury notice and declined to speculate on whether their deal will now go ahead.
But Allergan shares were down 15.5pc in New York as investors bet the deal will collapse. Pfizer has said the tie-up could save it $2bn a year, including in lower taxes. (Additional reporting Reuters)