Tax Inversions Are No Injustice

A month ago, Allergan, which is based in Ireland and has a sizable operation in Irvine, Calif., said it was approached by New York-based Pfizer but cautioned that there was “no certainty” that the “friendly” discussions would lead to a merger.

The solution proposed by Stiglitz to ensure more corporate taxes are paid is to fix a different part of the tax code. With this, Pfizer emerged as the largest pharmaceutical corporation in the world once again with a valuation of $320 billion surpassing industry leader Johnson & Johnson valued at $284 billion. Allergan is primarily focused on the Botox market. Pfizer may still have its global operational headquarters in NY with its principal executive offices in Ireland.

US President Barack Obama has called such inversion deals “unpatriotic” and has tried to crack down on the practice, and democratic presidential candidate Hillary Clinton has pledged to establish measures to prevent such deals. I’d note that his solution would have the added benefit that foreign-owned companies would likely have to pay more taxes in the U.S. At least in Brent Saunders’ house.

“Pfizer is a big employer here and presumably we would want it to continue to be, even if it does go through an inversion”.

“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world”, said Ian Read, Chairman and CEO of Pfizer. Then, a wholly owned subsidiary of Allergan will be merged into Pfizer under the umbrella of parent company Allergan plc and at that point Allergan plc will be renamed as Pfizer plc. As a result of the decision to maintain Allergan’s Irish legal domicile, Pfizer said it expects its tax rate to drop to 17 to 18 percent from its current 25 percent. In other pharmaceutical sector news, following the stalling of an earlier bid, the company Shire is preparing a new takeover offer for US biotech firm Baxalta.

Saunders noted that the combination move would allow Allergan to utilize greater resources and operate on a much larger scale.

The deal might have been described as a mega-merger in the pharma industry, but some of the leading analysts and pharma company executives in India told Business Today it doesn’t hold much ground for Indian pharma companies.