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David Savino

What’s the Deal with Corporate Inversions? A Quick Look at Pfizer’s acquisition of Allergan

Pfizer’s acquisition of Allergan this week has revived the controversy that flared up over corporate inversions earlier this year, along with the two competing and contradictory narratives struggling to explain the phenomenon and collectively cast blame on the other side.

The bone of contention revolves around tax rates. The business community contend that the US imposes the highest corporate tax rate in the world at 39%, and that they can lower their tax bill to roughly 15% through the maneuver by making Ireland their global headquarters and having their US income taxed at a lower rate.

But these statements are misleading. There’s a big difference between the statutory and effective tax rate, which takes into consideration deductions and loopholes. According to the Congressional Research Service, the US’s effective corporate tax rate of 27.1% is slightly lower than the OECD average 27.7%.

It’s clearly the business of businesses to make money, and Pfizer’s cost savings is likely to be huge. However what about the public benefits Pfizer will continue to reap after the inversion is completed? According to a recent editorial in the New York Times, they include:

  • Keeping de facto global headquarters and top executives in the US
  • Remaining listed on US exchanges, and under the same symbol
  • Having access to US capital markets and the protection of US security laws
  • Protection of US patent laws

Additionally, Pfizer will continue to benefit from publicly funded research done by the National Institutes of Health. NIH is, actually, the single largest contributor to pharmaceutical research in the United States, making up about 28%, compared to 35% from all pharmaceutical firms, 15% from biotech, and 7% from medical device manufacturers.

This leaves us at an inflection point. Clearly the US tax code is a mess, and until it’s reformed it’ll continue to provide cover to corporations taking advantage of the multitude of loopholes that exist.