Pfizer, the giant U.S. drug-making firm worth $200 billion, will merge itself into a smaller pharmaceutical corporation that is located in New Jersey but has a sham headquarters in Ireland.
There’s only one reason for this deal: to let Pfizer pretend that it’s based in Ireland, where taxes on profits are low, and thus elude billions in U.S. taxes. The overseas shift is a legal form of tax-cheating.
Such deals are called “inversions” — or “spinversions” in some variations — and they rob America. The New York Times commented:
“In recent years, dozens of American companies have used similar tactics, known as inversions, to reincorporate in Ireland, Britain and other countries with lower corporate tax rates than those in the United States — at a cost to the Treasury conservatively estimated at $20 billion over 10 years. Pfizer’s merger is by far the largest such move.”
West Virginia was entangled in a similar mess last year. Mylan Pharmaceuticals, headed by the daughter of Sen. Joe Manchin, D-W.Va., connived to pretend that it is now a Dutch firm, thus immune from U.S. corporate taxes. The senator publicly lamented his daughter’s action.
When big American corporations funnel their profits overseas to get cheaper tax rates, they can’t return the money to America without paying the 35 percent U.S. corporate tax. Therefore, the money is invested abroad, creating business and jobs over there, not over here.
“It’s all about tax-dodging and being a tax cheat,” Rep. Rosa DeLauro, D-Conn., sneered. Treasury Secretary Jack Lew said such firms are “effectively renouncing their citizenship to get out of paying taxes.”
President Obama drafted a plan to let such companies bring their profits back to America for just a 14 percent tax rate. But with Republicans in control of Congress, we don’t know how this reform will fare.
We agree with the Times’ conclusion:
“Reincorporating abroad is a sophisticated variation on the old practice of avoiding corporate taxes by renting a post office box in the Caribbean and calling it corporate headquarters. Congress put a stop to those tactics in 2004. It is past time to shut down inversions as well.”