Pfizer's tax-inversion flirtations

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One of America's oldest drugmakers wants to pull up stakes for tax-friendly Ireland, said Michael J. de la Merced and Leslie Picker at The New York Times. Pfizer, the 166-year-old U.S. drug company that produced painkillers during the Civil War and penicillin in World War II, has entered talks to buy Botox-maker Allergan, which is domiciled in Ireland for tax purposes, for $120 billion. Buying Allergan would make Pfizer, already the world's biggest drug company, a "pharmaceutical behemoth," worth some $300 billion. But perhaps more importantly, it would allow Pfizer to dramatically lower its tax bill by adopting Allergan's headquarters in Dublin, in what's known as a tax inversion. Pfizer CEO Ian Read "has made no secret of his disdain" for U.S. corporate tax rates, which he says leave his company competing with overseas rivals "with one hand tied behind our back." Pfizer tried and failed to buy British drugmaker AstraZeneca last year in attempt to escape the U.S. tax regime, so a deal with Allergan "could finally yield the inversion Pfizer has long desired."

"How could companies save so much just by becoming Irish?" asked Zachary Mider at Bloomberg. Because the U.S. has the highest corporate income tax rate in the developed world — 35 percent to Ireland's 12.5 percent. America is also one of the few countries to tax overseas profits earned by domestic companies. Moving to an overseas locale with a friendlier tax rate means more money for shareholders and research. And with good accountants, companies can often lower their tax bills further, well below the national rate. Allergan paid an effective tax rate of 4.8 percent last year, compared with 26.5 percent for Pfizer.

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Both Republicans and Democrats have condemned tax inversions "for hollowing out the U.S. tax base," said Barney Jopson at the Financial Times. "Policymakers, however, have struggled to find a way to put a stop to them." The Treasury Department issued anti-inversion rules in September 2014, but there have been at least six successful deals since then, including one involving Coca-Cola Enterprises, one of Coke's main bottlers, moving to the U.K. Washington has only itself to blame for Pfizer's flight, said The Wall Street Journal in an editorial. "The insane tax burden" companies face when they "want to bring profits back from overseas and invest them at home" makes it impossible for U.S. firms to compete globally. Until there is real corporate tax reform, "expect more American businesses to report to foreign headquarters."

The more immediate danger for consumers is the fact that health-care mergers are "out of control," said Paul R. La Monica at CNN. A merged Pfizer-Allergan would be like "a Ma Bell of health care," with blockbuster drugs like Lyrica, Viagra, and Restasis all "under one corporate roof." And "it's not just Big Pharma that's trying to get even bigger." Drugstore chain Walgreens is buying Rite Aid for $17 billion, leaving the U.S. with just two national pharmacy chains: Walgreens and CVS. A spate of planned insurance mergers — Aetna and Humana, Cigna and Anthem — will result in just three major health insurers. Consumers will soon have far fewer choices about their health-care options than they did a few years ago. Perhaps "the forces of the free market are what people really need to be worried about."