How Pfizer has shifted U.S. profits overseas for years

Mon Nov 16, 2015 12:34pm EST
 
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By Tom Bergin and Kevin Drawbaugh

RINGASKIDDY, Ireland (Reuters) - Drugmaker Pfizer's (PFE.N: Quote) plans to take over Allergan (AGN.N: Quote) have faced a political backlash in the United States over fears a deal would lead to the company shifting its headquarters and taxable profits to Ireland.

However a Reuters examination of corporate filings in Europe, patent databases and other information shows the company has for over a decade been shifting profits generated by American scientists and patients overseas - to a subsidiary based in the rolling hills of County Cork.

Pfizer and Allergan are in talks to create the world's biggest drug company by market value and analysts expect a deal would likely involve Pfizer "inverting", or reversing into the smaller, Irish-registered Allergan.

Ireland's tax rate is 12.5 percent, a fraction of the 35 to 40 percent levied in the United States.

President Barack Obama has described inversions as unpatriotic and last year changed some tax rules to make inverting less attractive. Allergan investors fear the U.S. treasury department may scupper a deal with additional measures.

Yet any such actions would already be too late to stop New York-based Pfizer from reporting in Ireland profits tied to its U.S. activities.

Pfizer has used transactions between companies within its group to allow an Irish subsidiary based in Ringaskiddy - Pfizer Ireland Pharmaceuticals - to buy the rights to patents developed in the United States and then use them to make drugs which are sold back to U.S. affiliates.

Even though the Irish and other overseas units pay $3.2 billion a year in royalties to use such patent rights, the higher prices at which Pfizer in the United States imports manufactured drugs from affiliates means almost all the profits from these drugs are reported overseas.   Continued...

 
An exterior view of Pfizer offices in Citywest, Dublin, Ireland, November 12, 2015. Picture taken November 12, 2015.     REUTERS/Tom Bergin