
Pfizer to Terminate $160B Merger with Allergan - Amorymeltzer
http://www.bloomberg.com/news/articles/2016-04-06/pfizer-to-terminate-160-billion-merger-with-allergan
======
randcraw
If you believe giant US companies should pay lower taxes, I have some bad
news. That'll be hard, because they already pay little or no US taxes now.

How much did Pfizer pay in US taxes between 2010 and 2012? Zero. What was
Apple's US tax rate in 2014? 3.7%. These taxes don't sound like much of a
burden to me.

Like most Fortune 100 firms, through legal maneuvering, Pfizer has been
offshoring profits for years in order to avoid paying US taxes. At present,
that has now added up to over $148B in offshored tax-free profit. Apple and
most other giant US corps are little different. None are exactly being taxed
into oblivion.

In fact, all these firms could repatriate those monies at tax rates
substantially lower than the nominal (high) tax rate. But that fact is
conveniently overlooked when US corp. tax rates are publicly bemoaned.

For example, I've heard there's a substantial tax savings when investing in US
R&D. What's wrong with that option when repatriating profit while lowering
taxes? And the sundry other imaginative ways available within existing US tax
law, if CFOs weren't so damned intransigent about paying the obligatory dues
of doing business in America?

In the end, you can't pretend corporations like Pfizer are aggrieved innocents
in the current legal stalemate of unrepatriated profits that US corporations
so volubly bemoan. They knew the deal when they launched their business in
this country. It's way too late to insist on changing the rules now.

[http://www.cnbc.com/2016/02/26/report-pfizer-
dodging-35b-in-...](http://www.cnbc.com/2016/02/26/report-pfizer-
dodging-35b-in-taxes.html)

[http://www.businessinsider.com/how-much-money-apple-
avoids-p...](http://www.businessinsider.com/how-much-money-apple-avoids-
paying-in-taxes-2014-6)

[http://billmoyers.com/2014/05/29/10-companies-that-dodge-
cor...](http://billmoyers.com/2014/05/29/10-companies-that-dodge-corporate-
taxes/)

~~~
hvidgaard
I don't know the US tax system, but I assume you have both VAT and income tax.
With that assumption, why should a company pay tax of their profit? As soon as
they spend some of that profit some of it is taxed in the form of VAT and
income tax.

When you have a system where profit is taxed, you get companies investing the
money in the most risk free thing they can, to avoid the profit tax. If profit
tax is 0% it's far simpler to keep the money home, and to use it when they
want to.

~~~
dingaling
> As soon as they spend some of that profit some of it is taxed in the form of
> VAT and income tax.

VAT-rated companies claim-back VAT again VAT-rated sales. In fact, a VAT-rated
company can earn more in VAT rebates than it collects in sales.

The traditional moral reason for taxing profit is that it's excess money for
which the company couldn't find a use; they've already paid the staff,
invested in R&D and maintained the corporate jet fleet and they _still_ have
money left over. The Government can quite easily find a use for that excess
cash in providing infrastructure which the company needs in order to operate.

~~~
whatok
> The traditional moral reason for taxing profit is that it's excess money for
> which the company couldn't find a use; they've already paid the staff,
> invested in R&D and maintained the corporate jet fleet and they still have
> money left over. The Government can quite easily find a use for that excess
> cash in providing infrastructure which the company needs in order to
> operate.

This is complete absurdity. There should be no "moral" reason behind taxes;
only logical. Taxes on profit are punitive against small businesses and
encourage tax optimization strategies that are not remotely related to any
sort of sound business. Assuming any government is going to better spend money
than private enterprise is one of the funniest things I've read today.

~~~
vibrio
"Assuming any government is going to better spend money than private
enterprise is one of the funniest things I've read today." As someone that
works in the same industry as Pfizer (and Valeant), yes it is true that
sometimes the government is going to spend money better than private
enterprise. The Cost and success rate of R&D in drug devleopment is not
sustainable without the significant funding the US government (and to some
extent other governments) contributes to basic science. The Valeant CEO (now
Ex) has used the phrase "value destroying R&D" and Pfizer is Pfamous in the
industry for R&D Pfailures. Both have been serial acquirers where they find
much of their post-consolidation synergies in R&D, leading to deep cuts (often
total cuts in Valeant's case). While they are acting economically rational
way, the long-term consequences are that they are subsidized by the
government.

------
bmmayer1
The irony is, the US has the highest corporate income tax of anywhere in the
world. Maybe if we eliminated corporate income tax (like most economists
suggest[1]), foreign companies would be inverting _here_ instead of the other
way around.

[1][http://www.dailykos.com/story/2014/8/25/1324505/-Eliminate-c...](http://www.dailykos.com/story/2014/8/25/1324505/-Eliminate-
corporate-tax-seriously)

~~~
marincounty
This is Robert Reich original idea, and quote.

"It's time we eliminated the corporate income tax and made up the shortfall by
increasing capital gains taxes. Here's the logic: First, the corporate income
tax favors big companies that are able to shift their income abroad and engage
in other tax-avoidance activities, while harming small companies that can't do
any of this and therefore suffer a competitive disadvantage. Yet small
companies are the engines of job growth in America. Second, the people who
actually pay the corporate income tax should properly be the company's
shareholders, who are the legal owners of the company and who benefit from
increases in its income. But in many cases, depending on the structure of the
market, a significant share of the actual burden of paying the corporate
income tax is often borne instead by employees in the form of lower wages, or
consumers in the form of higher prices."

It sounds like a good idea, but capital gains are already high. My aunt lives
in a house she bought for $25,000 in the 70's. She is far from well off. It's
a crime what she's going to pay on capital gains if she sells her house.

Yea, I know about the ways around the tax, but they have downsides.

I'd be for this, if capital gains were tied to income. Maybe tied to the
average income over the last 10 years?

Right now it's the same rate for a billionaire, and the old lady surviving on
social security. My aunt is taking the same percentage tax hit on the sale of
her investment as the billionaire?

~~~
nicobn
If you're talking about your aunt's primary residence, there is a capital gain
exclusion of $250,000 (or $500,000 for married couples). Additionally,
improvement costs, all sorts of taxes, fees, etc. can be excluded from capital
gains, on top of the base exclusion. Obviously, in a high COL area, the sale
price might be greater than the exclusion but it's pretty hard to argue that
someone making a greater than 1,000% profit on an asset should not pay capital
gain taxes on the gain above 1,000%.

See:
[https://www.irs.gov/publications/p551/ar02.html#d0e301](https://www.irs.gov/publications/p551/ar02.html#d0e301)

Your initial point still stands though. Capital gain tax rates are the same
for everyone.

------
bpodgursky
What a victory for rule of law. The Treasury decided it was legal, but they
didn't LIKE it, so they decided to make it so burdensome they wouldn't go
through with it.

Maybe, fix an idiotic corporate income tax so it's not a constant game
avoiding it. Companies are going to stop incorporating in the US; the golden
goose is going to die sooner or later.

~~~
refurb
It's not the first time something like that has happened (as I'm sure you
know). I'm reminded of the National Firearms Act. The gov't wanted to ban
fully automatic weapons back when the prohibition shoot outs were common.
Instead of just banning them (probably a long-drawn out process), they just
slapped a $200 tax on it. The guns at the time only cost ~$50, so it was an
effective 400% price increase.

The interesting part is they never updated the tax, so you can buy fully
automatic weapons now (if made before 1986) and you pay the $200 tax on a
weapon that is north of $10,000.

------
matt_wulfeck
The rules for inversion are stupid. More laws more rules. More eventual
loopholes. The game goes on.

Inversions are a symptom of a huge burdensome tax law that large businesses
are incenventized to keep because they benefit from all the fine print.

The rest of us are left scratching our heads and ultimately paying the bulk of
the taxes because we don't hire teams of tax lawyers.

~~~
refurb
_More eventual loopholes._

Exactly. All this does is send lawyers and accountants back to the drawing
board to figure out the next best option.

The only winners here are the politicians who can claim they are "tough on big
business".

------
sna1l
It seems insane that US corporate tax law isn't a bigger issue in this
upcoming presidential election cycle.

Companies like Google and Apple constantly take advantage of US/EU/wherever
tax laws to pay the least amount they have. I don't particularly blame the
companies because they are taking advantage of laws that currently exist, but
something needs to be done to simplify the tax code to avoid loopholes like
this.

------
partiallypro
Lower the corporate tax to 0%, cut all corporate indirect tax subsidies, raise
the top income brackets to offset the loss. Just doing this would be a big
boon for the U.S., imo. At the very least, make the U.S. corporate tax
structure actually competitive. We have the highest rate in the world, of
course people are going to let their money sit off shore.

~~~
vinay427
Also, can we please stop taxing the incomes over the exempted amount for US
citizens living overseas? I would love to have the option to live elsewhere
for some time without my citizenship hanging over me as a burden.

~~~
eli_gottlieb
Can we please revoke the US citizenship, then, of people who move to Singapore
just to avoid paying American income taxes? Or at least strip them of their
assets when they try to give up citizenship as a tax ploy?

~~~
vinay427
Seriously? If they move to Singapore why should they ethically be liable for
US taxes anyway? It's not like the US provides exemeplary services to non-
residents that are superior every other developed country (which all do not
tax their non-resident citizens). For instance, they didn't even opt to
evacuate most citizens out of Yemen and requested help from India to do so.

So no, I don't support paying taxes for services I don't receive. If I had to
make an analogy, it would be like a remote worker being charged for a catered
luncheon that he/she clearly can't attend, and when asked about being exempt
like every other remote worker, being told that he/she became a remote worker
solely to avoid the lunch payment and so should not be exempt.

~~~
eli_gottlieb
>If they move to Singapore why should they ethically be liable for US taxes
anyway?

Because they actually derive their entire income from work done and assets
owned in the USA, and don't even really live in Singapore.

~~~
vinay427
> Because they actually derive their entire income from work done and assets
> owned in the USA

How many people does this even apply to, compared to the vast number of US
citizens abroad (some of whom are not even aware they are US citizens) who owe
US taxes on income from local sources? If you really think this makes sense,
then tax it, but that isn't how income tax works today for expats who are
taxed on all of their income sources (globally) above the exemption.

> don't even really live in Singapore

There are laws in place to establish residency with a reasonable degree of
enforcement.

------
RA_Fisher
Corporate taxation is double taxation because personal income (and capital
gains) are taxed. The problem with double taxation is that splits and hides
the amount of tax. It's an anti-pattern that creates complexity and deadweight
losses like tax accounting, etc. that could be used for productive purposes.

------
randomname2
Not good for some hedge funds: "80 hedge funds counted Allergan as one of
their top 10 holdings at the end of the fourth quarter"

[http://reut.rs/1N8fNTF](http://reut.rs/1N8fNTF)

Not good for senior execs either of course, nor for the advising banks due to
lose out on $100 million of fees (Goldman, Guggenheim, Centerview, Moelis &
Company), and JPMorgan and Morgan Stanley lose out on dozens of millions of
investment banking fees.

Maybe good for some of the workers, who won't lose their job to "synergies"
anymore?

------
known
Govt will do nothing [http://www.huffingtonpost.com/entry/panama-trade-
deal_n_9223...](http://www.huffingtonpost.com/entry/panama-trade-
deal_n_922398.html)

