The large merger deal between New York-based Pfizer and Ireland-domiciled Allergan has prompted politicians to raise outcries over the the so-called "tax dodge" that the pharmaceutical companies committed.
The deal worth about $150 billion, entails Pfizer to change its United States address to Ireland through purchasing Allergan, a smaller pharmaceutical firm founded in Dublin.
The issue was blown up by a tax concept known as inversion, which is a key business strategy involving the acquisition of companies based outside of the U.S., where taxes are significantly lower. Once a deal has been made, the American company will move its headquarters abroad to escape the large taxes in the U.S.
Earlier in November 2015, the U.S. Treasury Department released new guidelines to halt inversions, but according to tax analysts, these new rules still do not apply to the deal that transpired between Pfizer and Allergan.
Although the deal appears to have a significant attribute of inversion, such that a big American firm acquires a smaller foreign company to obviously escape from large taxes, it technically is not an inversion.
Robert Willens, an independent tax consultant explained that for the case to be considered an inversion, the shareholders of Pfizer should have 60 percent of the combined firm. In the Pfizer-Allergan deal, the shareholders of Pfizer are obtaining only 56 percent of the combined firm, which leaves Allergan's shareholders with 44 percent. With this, an inversion case does not exist. "Treasury's proposals don't touch them," he said.
The situation has disappointed some politicians tremendously.
In New York, Senator Chuck Schumer said that Pfizer's decision to move is really disappointing.
Vermont Senator Bernie Sanders said the merger will enable another large American firm to hide its profits abroad.
Meanwhile, some politicians have expressed their rage over the business deal.
Hillary Clinton said Pfizer is utilizing legal loopholes so it can escape from its fair share of taxes by creating a merger that will backfire on U.S. taxpayers.
Republican presidential candidate Donald Trump said the Pfizer-Allergan deal will cause significant loss of jobs, which he described as "disgusting."
In a letter written by Pfizer CEO Ian Read, who seems to have anticipated outcries, he said that Pfizer will continue operations in New York. By the time the deal has been closed, they will have more than 40,000 staff members in 25 states. "We will be gaining greater access to resources that will enable us to make significant investments in the U.S," he closed.
Photo: Andrés Monroy-Hernández | Flickr
