Critics slam Pfizer-Allergan deal as ploy to dodge taxes

Pfizer chairman and chief executive Ian Read (left) and Allergan president and CEO Brent Saunders outside the Pfizer headquarters in New York on Monday. Pfizer is doing what is called an inversion deal, which will involve movng its tax address from t
Pfizer chairman and chief executive Ian Read (left) and Allergan president and CEO Brent Saunders outside the Pfizer headquarters in New York on Monday. Pfizer is doing what is called an inversion deal, which will involve movng its tax address from the United States to Ireland, if only on paper, by buying into and merging with Allergan, a smaller, Dublin-based competitor. PHOTO: BLOOMBERG

US politicians condemn $227b pharma deal but Pfizer boss says acquisition good for US

WASHINGTON • Pfizer's US$160 billion (S$227 billion) deal with Allergan was condemned as a tax dodge, rekindling a fierce political debate in the United States over the financial manoeuvre.

The acquisition, which would move Pfizer's headquarters to Ireland, would be the biggest tax inversion, so far.

Democrats heaped the most criticism on the New York-based drugmaker, with US presidential hopeful Hillary Clinton accusing Pfizer of using legal loopholes to avoid its "fair share" of taxes in a deal she said "will leave US taxpayers holding the bag".

Republican presidential front runner and real estate mogul Donald Trump, who has called for a corporate tax overhaul, said the deal was "disgusting", and that "our politicians should be ashamed".

But, in phone calls to Washington lawmakers and Obama administration officials, Scottish-born Pfizer chief executive Ian Read said the deal was actually good for the US.

  • Drug giants have big operations here

  • Pharmaceutical giants Pfizer and Allergan - which have just announced a US$160 billion (S$227 billion) merger - both have sizeable operations here.

    Collectively, they operate in at least seven different locations, and sell a diverse range of drugs in the market.

    Pfizer has been here since 1964 and employs 500 staff.

    The bulk of its business is in the sales and marketing of its prescription medicines and over-the-counter consumer healthcare products.

    It also has a manufacturing plant and scientific laboratory services located in Tuas Biomedical Park. The factory manufactures active pharmaceutical ingredients, which forms a part of the drug- maker's global supply chain.

    As the merger deal has just been announced, it is still early days to talk about any possible impact or changes to its operations here, Pfizer's spokesman said.

    Allergan, which had in May merged with generic drug- maker Actavis, operates Actavis' Asia-Pacific headquarters here. According to Allergan's website, its subsidiary, formerly known as Drug Houses of Australia, is a leader in Singapore's generic drug market. The company also operates a manufacturing facility.

    Chong Koh Ping

Pfizer is doing the largest inversion deal of all time. It plans to move its tax address from the US to Ireland, if only on paper, by buying into and merging with Allergan, a smaller, Dublin-based competitor.

The combined entity will be called Pfizer, and will be run by Mr Read, with executive management staying in New York and extensive operations across the US, but it will no longer be taxed as a US firm.

In phone calls made while the two firms were hammering out a deal, Mr Read told lawmakers and officials that a merger with Allergan would significantly cut Pfizer's tax bill and give it more cash that it could invest in the US and, ultimately, add jobs, according to people briefed on the calls.

Mr Read has made clear, publicly and privately, that his main priority is doing well by his shareholders - and that means finding a way to compete with huge foreign rivals that enjoy much lower tax rates.

"We've assessed the legal, regulatory and political landscape, and are moving forward with our strategy to combine these two great companies for the benefit of patients, and to bring value to shareholders," Mr Read said on Monday. "That is our obligation."

The White House declined to comment on Pfizer's deal, but a spokesman told reporters in a briefing that Congress should take action to prevent more such transactions.

The US Treasury Department last week unveiled new rules to clamp down on inversions - its second attempt to do so since a wave of deals peaked in September last year. But the latest rules amounted to tweaks of the existing laws and will not impede the Pfizer-Allergan transaction, tax experts said.

More than 50 similar deals have been done over three decades by well-known companies such as Medtronic, Fruit of the Loom and Ingersoll-Rand. Congressional researchers have estimated that inversions, if left unchecked, will cost the US Treasury nearly US$20 billion in the next 10 years.

Pfizer, which manufactured penicillin during World War II, said its tax rate last year was 26 per cent, compared with about 5 per cent that Allergan's predecessor company paid during the same time.

Bigger international rivals, like Britain's GlaxoSmithKline and AstraZeneca, and Switzerland's Novartis, also pay much less in taxes, potentially letting them win takeover contests with higher bids.

Pfizer kept overseas US$74 billion in profits earned abroad last year because bringing it home would have racked up billions of dollars in taxes. REUTERS, NEW YORK TIMES

Congressional researchers have estimated that inversions, if left unchecked, will cost the US Treasury nearly US$20 billion in the next 10 years.

A version of this article appeared in the print edition of The Straits Times on November 25, 2015, with the headline 'Critics slam Pfizer-Allergan deal as ploy to dodge taxes'. Print Edition | Subscribe