Taxes Drive Potential Merger of Pfizer, Allergan

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Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

A big US company is looking to move their headquarters overseas to a more competitive tax environment. It won't be long until other large companies begin this process ... meanwhile the other countries (in this case Ireland) flourish with state of the art facilities and high-paying biotech jobs.

Why won't the US change the tax code and encourage companies to stay (or migrate to) the US? Or at least change the the repatriation tax process/rate so you don't have corporations spending in other countries or simply holding onto cash for years until the next repatriation tax holiday.
Taxes Drive Potential Merger of Pfizer, Allergan
Pfizer in early talks to acquire Ireland’s Allergan, thrusting drug maker into rancorous debate over corporate taxes
Drug makers Pfizer and Allergan have confirmed they are in talks for a possible merger, in what could be the latest deal in year marked by major mergers and acquisitions.
By LIZ HOFFMAN, RICHARD RUBIN and JONATHAN D. ROCKOFF
Updated Oct. 29, 2015 9:19 p.m. ET

Pfizer Inc. is pursuing what could be the biggest overseas takeover to lower U.S. corporate tax liability, showing that efforts in Washington to stem such deals have amounted to little.

Company officials confirmed Thursday a Wall Street Journal report that it was in early talks to acquire Ireland’s Allergan PLC, a $100 billion-plus pursuit that thrusts Pfizer, the maker of Advil and Viagra, into the rancorous debate over corporate taxes.

It isn’t clear what terms New York-based Pfizer has in mind, but the deal could be structured as a so-called inversion, in which a U.S. company buys a smaller foreign rival to move its legal home to a lower-tax jurisdiction abroad. American firms have seized on these transactions, drawing a regulatory crackdown last year and widespread political opposition.

Pfizer Chief Executive Ian Read was unapologetic about his desire to reduce Pfizer’s tax rate, saying Thursday that U.S. corporate tax rates have put the company at a disadvantage to its foreign rivals.

“We’re fighting with one hand tied behind our back,” Mr. Read said in an interview. While declining to comment on the Allergan talks, he said Pfizer was “doing what we need to do to ensure that we can continue to innovate.”

Such a takeover would create a pharmaceutical colossus, with a market value likely exceeding $300 billion. It would rank as one of the largest corporate mergers ever and push this year’s deal-making further into record territory.

Pfizer’s pursuit places it squarely at the center of an intensifying debate over the U.S. corporate tax rates, among the highest in the world. It is the clearest sign yet that efforts by regulators to discourage these inversions—and by politicians to stigmatize them—have fallen short.

The Treasury Department announced a plan a year ago to make these deals less attractive, mostly by limiting access to overseas cash. Some inversions faltered— AbbVie Inc., for example, abandoned its takeover of Shire PLC—but the pace is now nearly back to where it was.

Lawmakers and candidates in both parties want to reduce the tax advantages of incorporating abroad, but they disagree on how to do it.

Republicans support a revamp of the tax system that includes lowering the corporate rate. Democrats, meanwhile, favor tougher rules that would stop U.S. companies from pursuing these deals to lower their tax liability.

On the campaign trail, Republican presidential hopefuls Jeb Bush and Donald Trump have expressed support for lowering the corporate tax rate, which they say would reduce the incentives to move abroad. Democratic front-runner Hillary Clinton is “committed to cracking down” on the inversion deals, a spokesman said Thursday.

Last week, billionaire investor Carl Icahn pledged $150 million to a political-action committee that would lobby to reduce taxes on corporate profits earned overseas and support legislation to block inversions.

Rep. Kevin Brady, a Texas Republican who is running for chairman of the House Ways and Means Committee, said Thursday that major changes were unlikely until at least 2017.

“I want to make sure all our companies are no longer uncompetitive when we compete around the world for profits, for sales and for contracts,” Mr. Brady said on a taping of C-SPAN’s “Newsmakers.”

Companies, meantime, are on the move. At least eight firms, including fertilizer maker CF Industries Holdings Inc. and soft-drink bottler Coca-Cola Enterprises Inc., have pursued inversions in the past year, compared with 11 in the prior year.

Many American companies feel “backed in the corner,” Xerox Corp. Chief Executive Ursula Burns told President Barack Obama last month at a meeting of business leaders in Washington.

The pressure is particularly acute in the pharmaceutical sector, where many of the largest players are based in lower-tax countries: 17 of the 25 biggest drug companies by market value are foreign, and they paid an average 17% tax rate last year versus 24% for the U.S. companies, according to FactSet.

Mr. Read said Pfizer’s more lightly taxed foreign rivals can spend more on research.

Pfizer’s tax rate was 25.5% in 2014, versus the 4.8% paid by Actavis, which changed its name to Allergan after the two companies combined earlier this year. Trimming that rate to 15%, for example, would save nearly $2 billion in taxes, based on the profit Pfizer expects to post this year.

Another lure of moving abroad is access to cash trapped overseas. Pfizer, like many of its peers, makes much of its money abroad and keeps it there, tax-free but largely off-limits. Pfizer had more than $30 billion in cash and similar investments as of June 30, “significant portions” of which are held outside the U.S., according to a regulatory filing.

If Allergan’s shareholders end up owning more than 40% of the combined company, Pfizer could use that cash to help fund the transaction and for other purposes.

Last year, Mr. Read tried to buy London-based AstraZeneca PLC for roughly $120 billion. That deal fizzled, leaving Pfizer in search of a merger partner to lower its taxes and invigorate its product pipeline.

Allergan offers both: A string of big deals has put CEO Brent Saunders atop a $100 billion-plus giant best known for such aesthetic drugs as wrinkle-fighter Botox and eyelash-lengthener Latisse.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

Largest inversion in history announced today. Curious to hear what Obama, Clinton, and Bernie chirp in with.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Saunders will call for tighter regulations for corporations. Clinton will use it to inflame the base, but stop short of a specific solution, just saying "more must be done".

First came the flight of jobs. Now we're seeing the flight of capital. Rising debt and your largest taxpayers relocating outside the country is a terrible recipe. The US needs to wake up soon to the consequences of too high taxation levels, too high spending levels, too low a work force.

Making villains of the 1% is fallacy. There isn't enough money there. They aren't the problem. There is no lawful way to confiscate wealth in a country where private property rights are the foundation of the economy. Make them enough of a villain, and they leave. Or just their money leaves.

The usual response to cutting entitlements is how heartless a move it is. Try bankruptcy on for heartless, everybody loses. It's good to be a humanitarian, but you must do it within your means. Not above your means.

When your best taxpayers leave, it's time to recognize you are living beyond your means and your taxes are too damn high.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by freeski »

Mister Moose wrote:Making villains of the 1% is fallacy. There isn't enough money there.
This is true. When I was young you'd hear "don't over tax the rich, I may become one of them some day". Today it seems many young people are more concerned with how they can milk the rich rather than how they can make money on there own. Much of the blame is with Sanders, Clinton and Obama. The left is preaching wealth redistribution and the kids are listening.

We need serious tax reform and to reign in spending we're already at the tipping point.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Mister Moose wrote:Saunders will call for tighter regulations for corporations. Clinton will use it to inflame the base, but stop short of a specific solution, just saying "more must be done".

First came the flight of jobs. Now we're seeing the flight of capital. Rising debt and your largest taxpayers relocating outside the country is a terrible recipe. The US needs to wake up soon to the consequences of too high taxation levels, too high spending levels, too low a work force.

Making villains of the 1% is fallacy. There isn't enough money there. They aren't the problem. There is no lawful way to confiscate wealth in a country where private property rights are the foundation of the economy. Make them enough of a villain, and they leave. Or just their money leaves.

The usual response to cutting entitlements is how heartless a move it is. Try bankruptcy on for heartless, everybody loses. It's good to be a humanitarian, but you must do it within your means. Not above your means.

When your best taxpayers leave, it's time to recognize you are living beyond your means and your taxes are too damn high.
Well said.

Just last week the US-gov't invites Novartis and Roche to discuss drug pricing :roll: :roll: ... don't invite the US-based biotechs
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by madhatter »

XtremeJibber2001 wrote:
Mister Moose wrote:Saunders will call for tighter regulations for corporations. Clinton will use it to inflame the base, but stop short of a specific solution, just saying "more must be done".

First came the flight of jobs. Now we're seeing the flight of capital. Rising debt and your largest taxpayers relocating outside the country is a terrible recipe. The US needs to wake up soon to the consequences of too high taxation levels, too high spending levels, too low a work force.

Making villains of the 1% is fallacy. There isn't enough money there. They aren't the problem. There is no lawful way to confiscate wealth in a country where private property rights are the foundation of the economy. Make them enough of a villain, and they leave. Or just their money leaves.

The usual response to cutting entitlements is how heartless a move it is. Try bankruptcy on for heartless, everybody loses. It's good to be a humanitarian, but you must do it within your means. Not above your means.

When your best taxpayers leave, it's time to recognize you are living beyond your means and your taxes are too damn high.
Well said.

Just last week the US-gov't invites Novartis and Roche to discuss drug pricing :roll: :roll: ... don't invite the US-based biotechs
not yet but as soon as it can safely be put to a vote, it will...when ya ain;t got nothin' half of someone else's nothin' seems like something worth taking...especially if all ya hafta do is vote for it...
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by Nikoli »

Didn't they just change the rules on this last Thursday? I remember hearing something about it on Marketplace/NPR... I believe the rule change also has claw-back language back to September.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

Post by XtremeJibber2001 »

Nikoli wrote:Didn't they just change the rules on this last Thursday? I remember hearing something about it on Marketplace/NPR... I believe the rule change also has claw-back language back to September.
Yes, but they were relatively minor. The changes do not apply to inversions in which the U.S. company’s shareholders end up with less than 60% of the combined entity.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Raise the taxes on corporations or people and they try to find ways around it or MOVE. CT passed more stupid gun laws so nearly every gun manufacturer has left for greener pastures. Tax payers are moving out of CT faster than people move in. Where do they go? New Hampshire, Delaware, or Florida along with others. Now corporations are moving too. Why? Because intelligent law makers upped the corporate tax rate. Many major tax payers are leaving including GE. No property taxes paid, no income taxes paid and no corporate taxes paid. Who runs the state of CT? DEMOCRATS! And don't forget the illegal Budgets they have passed. They must balance all budgets by law, butt they hide the deficits by moving the money OR raiding funds for pensions or health care.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Dr. NO wrote:Raise the taxes on corporations or people and they try to find ways around it or MOVE. CT passed more stupid gun laws so nearly every gun manufacturer has left for greener pastures. Tax payers are moving out of CT faster than people move in. Where do they go? New Hampshire, Delaware, or Florida along with others. Now corporations are moving too. Why? Because intelligent law makers upped the corporate tax rate. Many major tax payers are leaving including GE. No property taxes paid, no income taxes paid and no corporate taxes paid. Who runs the state of CT? DEMOCRATS! And don't forget the illegal Budgets they have passed. They must balance all budgets by law, butt they hide the deficits by moving the money OR raiding funds for pensions or health care.
Not that I disagree with your argument, but:

1. GE is leaving Connecticut?

2. What is illegal about a budget that moves money around, even if it robs from Peter to pay Paul? Wrong? Yes. Illegal? No, not really.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Bubba wrote:
Dr. NO wrote: And don't forget the illegal Budgets they have passed. They must balance all budgets by law, butt they hide the deficits by moving the money OR raiding funds for pensions or health care.
2. What is illegal about a budget that moves money around, even if it robs from Peter to pay Paul? Wrong? Yes. Illegal? No, not really.
It isn't "moving money". CT like many states, has a balanced budget law. All expenditures must be paid from current tax receipts. Deficit spending by the legislature is illegal.

Prior to Malloy (current CT governor), several times the State shifted expenses to the towns, raided transportation funds, and who knows what else to balance the budget. This falls under the Rob Peter to pay Paul technique you describe, and yes, that's not illegal.

However.

Malloy took it much further. He borrowed money to pay for his very large budget deficit. Because his budget could afford the first year's interest on the amount borrowed, he declared the budget balanced. That's still deficit spending in my book. Debt is incurred. It's just secured debt (a bond) instead of unsecured (simply owed), and when it comes to State debt I have trouble seeing the difference. I'm not sure it would stand up in court, but so far it hasn't been tested. So if you take the strict view on deficit spending, yes, it's illegal.

Paul Harvey post script:
At the end of that fiscal year, there were a few bucks left over after borrowing hundreds of millions, so Malloy declares a budget "surplus"! That's right, CT spent hundreds of millions more than it took in, but because we didn't use all that we borrowed, it was a surplus. Can't wait to try that one on my bank. Malloy then tries to curry good favor by refunding this phony "surplus" to the taxpayers. Luckily smarter folks prevailed and none of the borrowed money went out to buy votes.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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So we have bolded quotes in from Trump, Clinton, Sanders, and O’Malley. Each candidate doesn't seem to have a grasp of financials or their grasp doesn't fit in a neat and tidy headline.

Clinton thinks organizations are "hiding earnings" abroad to lower their taxes, when they're actually doing what the US tax law permits them to do. They simply defer repatriation of cash until a later date. Notice Hillary makes no proposal to solve the problem.
Trump thinks jobs will be going overseas. It's been happening for years and this is no different. However, most jobs losses, at least I imagine, will be a result of the merger not the legal entity inversion.
Sanders seems to be on the same page as Clinton alluded what US corporations are doing is illegal. I don't believe POTUS has the unilateral authority to stop a merger of two companies. Bernie at least offers a solution, but he alludes taxes should be increased.
O'Malley thinks it's unfair and is butthurt. Someone peed in his cheerios.
WSJ wrote:With Pfizer Deal, Donald Trump and Hillary Clinton Finally Agree on Something
By PETER NICHOLAS

It’s a rare day on the campaign trail when the Democratic and Republican presidential front-runners agree on something, but both Hillary Clinton and Donald Trump came out strongly on Monday against the blockbuster merger deal between Pfizer Inc. and Allergan PLC.

The $150 billion agreement between the two companies became a flashpoint in the presidential race after it was announced Monday, fueling concerns about companies fleeing U.S. taxes by moving their legal headquarters abroad.

Under the agreement, Pfizer’s tax base would move from the U.S. to Allergan’s home territory of Ireland in what is known as a corporate inversion.

Mrs. Clinton, in a statement, said: “For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes. Now Pfizer is trying to reduce its tax bill even further. This proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag.”

Mr. Trump also denounced the deal, focusing on potential job losses at home.

“The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting. Our politicians should be ashamed,” he said in a statement.

Pfizer said Monday that the company’s operational headquarters would remain in New York and didn’t signal any plans to move jobs overseas.

Mrs. Clinton’s rivals for the Democratic nomination also attacked the deal.

Sen. Bernie Sanders of Vermont, who is running second to Mrs. Clinton on the Democratic side, said in a statement: “The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs. It also would allow another major American corporation to hide its profits overseas. The Obama administration has the authority to stop this merger, and it should exercise that authority. Congress also must pass real tax reform that demands that profitable corporations pay their fair share of taxes.”

Martin O’Malley, the former Maryland governor who trails both Mrs. Clinton and Mr. Sanders in the Democratic race, said: “The Pfizer-Allergan merger is fundamentally unfair, and a prime example of how our capitalist economy is not supposed to work. American small businesses and middle-class taxpayers do not have the ability to game the system and avoid paying the taxes they owe – Pfizer should not be able to either.”

Republican candidate Ben Carson, who has been vying with Mr. Trump for front-runner status, declined to comment through a campaign spokesman.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Mister Moose wrote:
Bubba wrote:
Dr. NO wrote: And don't forget the illegal Budgets they have passed. They must balance all budgets by law, butt they hide the deficits by moving the money OR raiding funds for pensions or health care.
2. What is illegal about a budget that moves money around, even if it robs from Peter to pay Paul? Wrong? Yes. Illegal? No, not really.
It isn't "moving money". CT like many states, has a balanced budget law. All expenditures must be paid from current tax receipts. Deficit spending by the legislature is illegal.

Prior to Malloy (current CT governor), several times the State shifted expenses to the towns, raided transportation funds, and who knows what else to balance the budget. This falls under the Rob Peter to pay Paul technique you describe, and yes, that's not illegal.

However.

Malloy took it much further. He borrowed money to pay for his very large budget deficit. Because his budget could afford the first year's interest on the amount borrowed, he declared the budget balanced. That's still deficit spending in my book. Debt is incurred. It's just secured debt (a bond) instead of unsecured (simply owed), and when it comes to State debt I have trouble seeing the difference. I'm not sure it would stand up in court, but so far it hasn't been tested. So if you take the strict view on deficit spending, yes, it's illegal.

Paul Harvey post script:
At the end of that fiscal year, there were a few bucks left over after borrowing hundreds of millions, so Malloy declares a budget "surplus"! That's right, CT spent hundreds of millions more than it took in, but because we didn't use all that we borrowed, it was a surplus. Can't wait to try that one on my bank. Malloy then tries to curry good favor by refunding this phony "surplus" to the taxpayers. Luckily smarter folks prevailed and none of the borrowed money went out to buy votes.
So, prior to the current governor, Connecticut had zero debt? Everything was paid for out of current year tax receipts and no bonds were ever issued?
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Bubba wrote: So, prior to the current governor, Connecticut had zero debt? Everything was paid for out of current year tax receipts and no bonds were ever issued?
Yes, of course CT issued bonds prior to Malloy. Bonds were issued to build something, they were for long term improvements. Physical assets of the State. You had something at the end to look at, ie a college or a highway or a Civic Center. Note that those kinds of investments can throw off income to help pay back the bond. Borrowing to pay for current expenses is different. There is no asset that you borrowed against that you still have after the bond is paid off. That kind of borrowing reduces your bond rating, and increases your cost of borrowing. See US Treasury.

But you knew this I suspect.
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Re: Taxes Drive Potential Merger of Pfizer, Allergan

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Mister Moose wrote:
Bubba wrote: So, prior to the current governor, Connecticut had zero debt? Everything was paid for out of current year tax receipts and no bonds were ever issued?
Yes, of course CT issued bonds prior to Malloy. Bonds were issued to build something, they were for long term improvements. Physical assets of the State. You had something at the end to look at, ie a college or a highway or a Civic Center. Note that those kinds of investments can throw off income to help pay back the bond. Borrowing to pay for current expenses is different. There is no asset that you borrowed against that you still have after the bond is paid off. That kind of borrowing reduces your bond rating, and increases your cost of borrowing. See US Treasury.

But you knew this I suspect.
Yes, of course I knew that, but isn't that a form of deficit spending by not paying from current year tax receipts? And what about tax anticipation bonds that states and municipalities use? I assume Connecticut has used those as well. The fact is that most states use deceit in their balanced budget process until they no longer have funds to draw from. Deceitful? Of course. Illegal? Doubtful. If it was illegal, I'm sure someone would have gone to court by now.
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