Pfizer Wants To Expatriate

Jia Lynn Yang explains why the pharma giant is trying to acquire its British rival AstraZeneca:

It’s no secret that one of Pfizer’s motivations in its $100 billion bid for AstraZeneca is to save big on U.S. taxes. By purchasing a foreign company with company cash being held overseas, the pharmaceutical giant avoids getting hit by the U.S. federal corporate tax rate of 35 percent.

As part of the deal, Pfizer is also seeking to incorporate in Britain, a break from the company’s American roots — and the American corporate tax rate. But Pfizer isn’t picking just any country as a potential new home for incorporation. The British government has been tweaking its tax code in recent years to make it easier for businesses to lower their tax bills — especially for multinationals with byzantine accounting structures. And in the pantheon of companies that do this, few are more adept than tech and pharmaceutical companies. Companies exactly like Pfizer.

Peter Waldman describes how Pfizer could finagle the acquisition, which AstraZeneca has so far rebuffed, to avoid US taxes entirely:

[H. David] Rosenbloom [director of the international tax program at New York University School of Law] expects Pfizer to use a foreign subsidiary to borrow against the untaxed earnings overseas, and to use the borrowings to purchase AstraZeneca. That way the money may never technically land on U.S. shores and may never be subject to U.S. tax, and Pfizer could take a tax deduction on the interest expense, Rosenbloom says.

Barro suggests a way to counter the UK’s efforts to lure tax-averse corporations:

It’s counterintuitive, but Congress could avoid this problem by abolishing the tax on corporations’ profits and much more aggressively taxing their American shareholders – who are unlikely to flee to London along with Pfizer’s incorporation documents.