Pfizer move to join tax-driven deal-making raises red flags in U.S

Mon Apr 28, 2014 6:59pm EDT
 
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By Kevin Drawbaugh

(Reuters) - A wave of tax-driven overseas deal-making by U.S. companies gained momentum with drugmaker Pfizer Inc's (PFE.N: Quote) announcement on Monday that it had made takeover bids for UK rival AstraZeneca Plc (AZN.L: Quote), fueling political concerns about tax "reflagging" strategies.

Pfizer said it wants to buy AstraZeneca and merge the two companies into a UK holding company with a UK tax domicile, while maintaining its operational headquarters in New York. It would likely be the largest deal ever done that included such a so-called tax "inversion."

If a deal goes through - which is far from certain given AstraZeneca has so far rejected Pfizer's overtures - it would likely mean a loss of corporate tax revenue for the United States, and a lower effective tax rate for the combined entity than the two companies pay now.

For 2013, Pfizer disclosed an effective rate of 27.5 percent and global cash income tax paid of $2.87 billion, including income taxes paid to the U.S. government and other state and foreign tax authorities, based on company filings.

The Pfizer proposal triggered concern in Washington. "This further demonstrates the urgency for tax reform," said a spokeswoman for Democratic Senator Ron Wyden, chairman of the tax-writing U.S. Senate Finance Committee.

"Now is the time to undertake comprehensive reform to ensure our country stays competitive on a global stage and continues to be the best place for corporate investment," the spokeswoman said.

Governments worldwide are increasingly wary of corporate tax avoidance. The Obama administration earlier this year included a proposal in its 2015 budget to clamp down on deals like the one Pfizer is pursuing. The administration's proposal is unlikely to go anywhere though with Congress deadlocked on tax issues.

The U.S. Internal Revenue Service on Friday issued a separate notice limiting shareholders' tax-free treatment in inversion transactions.   Continued...

 
The Pfizer logo is seen at their world headquarters in New York April 28, 2014. REUTERS/Andrew Kelly