Tax avoidance of global players would not assure long term gains.
Other than the cases of big American ITC companies accused of tax avoidance in Europe a comparable case has been criticized in the U.S. with the merger of two pharmaceutical companies. The announcement of Pfizer $160bn merger with Allergan an Irish registered company caused political reactions from the Government and the new pretender for the democratic presidential candidacy Hilary Clinton.
This deal as an article at FT indicated lacks any industrial logic and the only reason it had been made is to avoid U.S. taxes as the company will change domicile in Ireland. Pfizer estimate to save approximately $21bn in future taxes by moving the combined group to Ireland, joining other brands which have fled overseas through “inversions”, such as Burger King and Liberty Global cable group.
Tax ““inversions” have long been a dirty word in the US. President Barack Obama railed against them last year, appealing (vainly) to the economic patriotism of corporate bosses. His administration subsequently sought to narrow the loophole that allows these deals to be done.
Pfizer’s megadeal gives the ratchet of public outrage another twist. Drug companies are among the biggest practitioners of inversions. Allergan itself was taken offshore by such a manoeuvre a few years ago. Pfizer made an unsuccessful attempt when it tried to merge with the UK’s AstraZeneca just 18 months ago.
Drug companies’ enthusiasm for tax arbitrage sits uncomfortably with the sector’s dependence on official support. This goes beyond the US legal framework and the protection it offers for intellectual property. Pharma companies benefit from taxpayer-funded research through such bodies as the National Institutes of Health and the National Science Foundation. Drugs purchases worth billions of dollars each year are funnelled through federally funded buyers such as Medicare and Medicaid.”
The Democratic political challenger Hillary Clinton has already denounced the deal for leaving the US taxpayer “holding the bag”.
More worryingly, the sector’s poor standards of corporate citizenship threaten to undermine public confidence in America’s laissez faire drug regime. Tighter price controls might erode support for research in the longer term. That would be a bad thing not just for the US, but for the world.”
The U.S. has its responsibility too and it seems that such inversions are a consequence of a deeply dysfunctional corporate tax code. At 35 per cent, US corporate tax is among the highest in the developed world. Global companies are good at engineering far lower rates compared to Smaller ones. A reform of the tax system would be preferable. In that sense the State will have justified its part as defining the prerequisites of good citizenship.
In fact what is at stake here too is the amount of acceptance of the brand products of these companies that once accused of poor social consciousness will be automatically be “taxed” commercially by a public all the more aware of these issues.