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.