Pfizer and Allergan deal causes US tax regime concern

Pfizer’s plan to merge with Ireland-based Allergan shows the “critical and urgent need” to overhaul US taxes, the Republican chairman of the House subcommittee that oversees tax policy said yesterday.

The US is “forcing companies to relocate to countries with more business-friendly tax regimes”, Louisiana Representative Charles Boustany, who leads the House Ways and Means subcommittee, said during a Washington hearing.

“This is not the first, nor will it be the last foreign acquisition pushed over the line by the US tax code.

"This must be a Congress of action regarding tax reform,” said Mr Boustany.

Pfizer announced last month it would move its tax address to here as part of a $160bn (€151.2bn) combination with Allergan.

The deal would be the largest so-called corporate inversion, in which US companies use a merger to take a foreign address and cut their tax rates.

Dublin-based Allergan is buying the much larger New York-based Pfizer, and the new company, with products including Viagra and Botox, will be able to take advantage of this country’s 12.5% tax rate.

How Pfizer-Allergan could put the US and Ireland on the spot https://t.co/7WuPrwy1Sl pic.twitter.com/6qEVjJ7pVu

— Financial Times (@FT) November 25, 2015

The US rate is 35%.

The Ways and Means subcommittee’s top Democrat, Richard Neal of Massachusetts, agreed that the Pfizer announcement shows “Congress must take action immediately to stop the flow of inversions”.

“With this merger, the US tax base continues to erode,” Mr Neal said.

“Our rudimentary tax code remains ill-equipped to handle our increasingly globalised and digital economy.”

He called for lowering the corporate rate “in a revenue-neutral way as the Obama administration has proposed.”

President Barack Obama in 2014 questioned the “economic patriotism” of companies that engage in inversions.

Congressional Democrats have unsuccessfully sought legislation to crack down since the latest wave began in 2012 by companies including Burger King, Medtronic and Mylan.

Republicans have resisted, arguing a broader revamp of the tax code should take priority.

The US Treasury has increasingly targeted inversions, most recently announcing new guidance on how it will value assets.

The US has the highest tax rate for businesses in the world and is one of the only countries to tax profits wherever they are earned.

Previous moves by the Treasury derailed other proposed inversions, including AbbVie’s plan to buy Ireland’s Shire for an estimated $52bn.