Taxes Drive Potential Merger of Pfizer, Allergan

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deadheadskier
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by deadheadskier »

Maybe CT needs a Republican Governor like Rowland who is honest about taxes!

.....oh, wait a minute. Right........
XtremeJibber2001
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

So much for inversions. Treasury Dept adding laws to specifically target one company ... capitalism?
New Rules on Tax Inversions Threaten Pfizer-Allergan Deal
By RICHARD RUBIN and LIZ HOFFMAN
Updated April 4, 2016 8:28 p.m. ET

WASHINGTON—The Treasury Department imposed tough new curbs on corporate inversions Monday, shocking Wall Street and throwing into doubt the $150 billion merger between Pfizer Inc. and Allergan PLC, which was on track to be the biggest deal of its kind.

The Treasury move, which was more aggressive than anticipated, sent Allergan’s shares tumbling 19% in after-hours trading and could stall a trend in corporate deal-making that has seen companies searching for ways to escape the U.S. tax net. Pfizer shares edged 0.9% higher.

“It’s going to be a major impediment. They’re pretty much taking all of the juice out of inversions,” said Robert Willens, a New York-based tax analyst. “They’ve addressed literally every benefit that one attempted to gain from an inversion and shut them all down systematically.”

The new rules, the government’s third wave of administrative action against inversions, will make it harder for companies to move their tax addresses out of the U.S. and then shift profits to low-tax countries using a maneuver known as earnings stripping.

In an inversion, a U.S. company takes a foreign address, typically through a merger with a smaller firm. The combined company can then lower its tax rates through internal borrowing and can more easily move non-U.S. profits around the world and back to shareholders while avoiding U.S. taxes.

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Deal lawyers, who have made millions in fees over the past few years advising on inversions, mostly shrugged at the previous two rounds of Treasury rules, which nibbled around the edges but made few major changes.

They digested Monday’s announcement with greater alarm, with many saying it was an unexpectedly aggressive move from a Treasury Department that has expressed frustration at the limits of its own powers in curbing these transactions. Several deal makers said the rules seemed squarely aimed at the Pfizer-Allergan transaction, which has drawn fire from politicians in an election year.

Partners at tax departments of major law firms were gearing up for a long night parsing the regulations, which run over 300 pages.

Robert Holo, a tax partner at Simpson Thacher & Bartlett LLP, called the regulations a “significant escalation of the attack on inverted companies.”

“Not only does it attack the ability to invert, but puts the single greatest benefit of doing so—earnings stripping—on the chopping block,” he said.

The rules have two main parts, each of which could affect the Pfizer deal. First, the government would go after what it calls “serial inverters,” large companies created through multiple inversions or takeovers of U.S. companies. The government would disregard U.S. assets acquired by such companies over the previous three years.

Consider Allergan. The company’s current heft is the result of several cross-border deals, starting with the 2013 inversion of Actavis Inc., a small New Jersey-based drugmaker, through a takeover of Ireland-based Warner Chilcott PLC. What followed was a string of ever-larger deals, culminating in Actavis’s $66 billion takeover of U.S.-based Allergan Inc. last year.

Under the new Treasury regulations, those deals would be disregarded for the purposes of determining Allergan’s size under the tax law. The three-year window would cover the 2015 merger of Actavis and Allergan, Actavis’ $25 billion purchase of Forest Laboratories Inc. in 2014, and the original $5 billion Warner Chilcott deal.

Stripping those deals out of Allergan’s closing market capitalization of $106 billion could make it too small to serve as Pfizer’s inversion partner under federal rules that disfavor lopsided mergers, or limit the financial benefits of the arrangement.

To reap the full benefits of inverting, the U.S. company’s shareholders should own between 50% and 60% of the merged entity, which requires a partner of carefully calibrated size. Above that, some restrictions apply, including rules making it harder for companies to access foreign profits. The Pfizer-Allergan deal is structured so that Pfizer’s shareholders will own 56% of the company.

Mr. Willens said the new percentage in the Pfizer-Allergan deal would be at least 60% and could approach 80%, above which all benefits of the inversion are lost.

“It certainly puts a crimp in the deal and it’s not out of the question I suppose that Pfizer would want to rethink the transaction given the development,” Mr. Willens said.

“We are conducting a review of the U.S. Department of Treasury’s actions announced today,” Pfizer and Allergan said in a statement Monday. “Prior to completing the review, we won’t speculate on any potential impact.”

Treasury’s second action would limit what is known as earnings stripping, a practice that follows many inversions and other cross-border acquisitions that helps lower companies’ effective tax rates.

Inverted companies—in fact, all non-U.S.-based companies—can lend money to their U.S. subsidiaries. Those moves create deductible interest in the U.S., reducing the income subject to the 35% U.S. corporate tax rate and shifting income to a lower-taxed jurisdiction. If a U.S.-based company tried the same technique by borrowing from its offshore subsidiaries, the government would tax that income at the U.S. rate.

The Treasury Department is basically giving itself more authority to revoke tax advantages of debt for inverted companies.

A senior Treasury official said the limits would apply only to debt between related parties and wouldn’t apply to debt used for investments such as expansions of U.S. facilities.

“After an inversion, many of these companies continue to take advantage of the benefits of being based in the United States—including our rule of law, skilled workforce, infrastructure, and research, and development capabilities—all while shifting a greater tax burden to other businesses and American families,” said Treasury Secretary Jack Lew.
The government’s new rules would apply to all deals that close after Monday and all intercompany debt transactions issued after Monday. That likely means that companies that have already closed inversion deals will be unaffected by the three-year rule, though the earnings stripping guidelines could be a factor for them.

It isn’t clear how the new rules will affect other pending inversion deals. The volume of such deals has diminished amid the Treasury’s push.

“Treasury’s step is big economically,” said Steve Rosenthal, a senior fellow at the Tax Policy Center in Washington who had urged the government to take some of the actions. “Heretofore Treasury only penalized inversions, not foreign takeovers, which left U.S. companies as attractive targets for larger foreign companies.”

As he did upon releasing anti-inversion rules in September 2014 and November 2015, Mr. Lew again called for Congress to pass short-term anti-inversion legislation and a broader revamp of the U.S. business tax system.

“These regulations will make potential inverters and foreign acquirers think twice before making the leap, and those bad actors should be on notice that we intend to clamp down even further,” said Sen. Charles Schumer (D., N.Y.).

Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, criticized the rules as “punitive” steps that would hurt U.S. companies and discourage investment.

Write to Richard Rubin at richard.rubin@wsj.com and Liz Hoffman at liz.hoffman@wsj.com
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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It is very possible that this action by Treasury will end up in court, however, with the time a court case will take, I would expect this deal to die shortly.
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XtremeJibber2001
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

Bubba wrote:It is very possible that this action by Treasury will end up in court, however, with the time a court case will take, I would expect this deal to die shortly.
Maybe someone will fight the good fight. You'd think the US would want to work with the US-based corporations sitting with all that cash overseas. The Gov't will either work with them by re-assessing the corporate tax rate or do another tax holiday like they did in 2004 at a rate of around 5%.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

Thought this article summarized a lot of issues impacting US-based corporations.
Treasury Is Wrong About Our Merger and Growth - The broken U.S. tax system puts American companies like Pfizer at a competitive disadvantage.
By IAN READ
April 6, 2016 7:06 p.m. ET

In the pharmaceutical industry we develop medicines and therapies to address world-wide health challenges. The work is complex and deeply gratifying. At Pfizer we employ more than 30,000 highly skilled people in the United States alone and invest almost $8 billion annually in R&D, much of it in the U.S.

Surely we benefit from world-class academic institutions, a highly skilled labor force and other attractions of doing business in the U.S. But the key point is so do our foreign competitors. And they pay significantly less for the privilege. So we compete in a global marketplace at a real disadvantage. The U.S. tax code has among the highest rates in the Western world and forces its multinationals to pay U.S. tax on income earned abroad if they want to bring it back to this country.

The real-world consequences are significant. In Cambridge, Mass., where Pfizer has a state-of-the-art research lab, we are surrounded by foreign-owned competitors’ facilities. When those companies invest in their facilities, it is often as much as 25%-30% cheaper than every dollar we put into research and jobs. Why? Because our competitors don’t have to pay the penalty imposed on U.S. corporations bringing earnings back to America. We can invest less—because of a broken tax system.

Pfizer has long worked with Congress to make the U.S. tax system more competitive and fair. In the absence of tax reform, we undertook a proposed merger with Allergan PLC in good faith and after intense study and review of current laws. This strategic transaction, driven by strong commercial and industrial logic, would have made it easier to invest in the U.S.

On Monday the U.S. Treasury announced a third set of new rules governing corporate re-domicilings, or so-called inversions. It surprised many because Treasury Secretary Jack Lew said in 2014 that “we do not believe we have the authority to address this inversion question through administrative action. If we did, we would be doing more. That’s why legislation is needed.”

This week’s Treasury action interprets the tax laws in ways never done before. This ad hoc and arbitrary attempt to single out and damage the growth opportunities of companies operating within the current law is unprecedented, unproductive and harmful to the U.S. economy.

The action was accompanied by much unfortunate rhetoric about tax avoidance. No one was shirking their U.S. tax bills. In a merger with Allergan PLC, an Irish company, we would have continued to pay all federal, state and local taxes on our U.S. income. All that these new rules will do is create a permanent competitive advantage for foreign acquirers. Simply put, there will be more foreign acquisitions of U.S. companies resulting in fewer jobs for American workers.

What fails to get noted is our steadfast commitment to science and good corporate citizenship. More than half of Pfizer’s 1,000-plus R&D collaborations take place in the U.S., where our partners include academic hospitals, government organizations, nonprofits, foundations, patient advocacy groups and other pharma companies.

Companies like Pfizer and Allergan contribute to the communities in which we operate. To be pilloried as “deserters” when we are trying to stay competitive on a global stage so that we can continue to invest in the U.S. is wrongheaded. Government policy should encourage investment certainty and job creation. Combining these two businesses would have had a positive impact on the lives and livelihoods of many people.

While the Treasury’s proposal is a shot at Pfizer and Allergan, this unilateral action will hurt other companies as well. If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete? The new “rules” show that there are no set rules. Political dogma is the only rule.

Pfizer will continue to make medicines that significantly improve lives. We are proud of our heritage, our commitment to patients and we will continue to drive for cures.

Mr. Read is chairman and chief executive officer of Pfizer Inc.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Big Business Groups Just Sued the Government for Blocking the Pfizer-Allergan Merger
by Jen Wieczner @jenwieczner AUGUST 4, 2016, 6:18 PM EDT

Two business groups representing Pfizer and Allergan are suing the government, claiming that its new regulations were “tailored to destroy” a planned merger between the pharmaceutical companies.

The rules, issued in April by the Treasury Department and the Internal Revenue Service, significantly limited U.S. corporations’ ability to lower their tax rate by acquiring companies overseas in so-called “inversion” deals. Pfizer and Allergan called off their $160 billion deal less than 48 hours later, citing the disappearance of tax benefits under the new rules.

On Thursday, the U.S. Chamber of Commerce in conjunction with the Texas Association of Business filed a lawsuit accusing the IRS and Treasury of abusing their power to “gerrymander a regulation to support rejection of the Pfizer inversion.”

Both Pfizer PFE -0.51% and Allergan AGN -1.35% are members of the Chamber as well as TAB (Allergan is represented indirectly by the latter, as it belongs to a subgroup of TAB). The Chamber says it is bringing the lawsuit, filed in a Texas federal court, on behalf of its “entire membership,” but Pfizer and Allergan are the only alleged victims the suit mentions by name.

Rather than seeking monetary damages, the groups are asking the court to nullify the regulation known as the “Multiple Acquisition Rule,” which disregards any foreign company’s acquisitions of U.S. companies in the past three years when determining its stock ownership of the combined company. The rule meant that Allergan, which moved its headquarters from the U.S. to Ireland over the course of a flurry of deals, would have, in the eyes of the government, owned too small a share to lend the new company its lower tax rate.

“As intended, the Multiple Acquisition Rule caused the two corporations to abandon their proposed merger,” the lawsuit claims. “Allergan and Pfizer were injured by the Multiple Acquisition Rule’s disruption of their merger plans,” it further alleges.

The rule harms the companies, according to the legal complaint, by imposing “a regulatory disability” on the drugmakers’ ability to do M&A deals and “foreclosing merger opportunities. ”

Neither Allergan nor the IRS responded to requests for comment. A Pfizer spokesperson said the company was not a party to the litigation, and therefore declined to comment. But she referred back to Pfizer CEO Ian Read’s Wall Street Journal editorial, published the same day the Allergan deal failed, in which he makes the same arguments echoed in the lawsuit. “While the Treasury’s proposal is a shot at Pfizer and Allergan, this unilateral action will hurt other companies as well,” Read wrote.
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