
Pfizer’s Big Breakthrough: Global Tax Avoidance - hvo
http://www.nytimes.com/2015/11/24/opinion/pfizers-big-breakthrough-global-tax-avoidance.html?action=click&pgtype=Homepage&clickSource=story-heading&module=opinion-c-col-left-region&region=opinion-c-col-left-region&WT.nav=opinion-c-col-left-region
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chollida1
There is an entire class of hedge fund who make their money by only investing
in the stock of companies who are merging. This is called merger arb and this
deal is a huge one.

Unfortunately it is about as uncertain as a deal can be due to concerns about
the government not allow the merger.

For those of you who don't follow corporate mergers, there has been a trend
recently of larger american based corporations doing mergers with smaller
foreign companies to move their head quarters to another country where the
corporate tax rate is lower, these are know as tax inversions.

Burger King famously recently merged with Canadian "icon?" Tim Hortons in an
attempt to domicile the corporation in Canada to lower their tax rate.

This is only going to intensify and its corporations telling America that
their corporate tax rates are too high.

The US has a tax rule specific to itself where by it taxes corps at 35% on
profit no matter which country it was earned it. It does let companies deduct
taxes paid to foreign governments but it leads to companies operating in a way
to minimize their US taxes.

From the article linked at the bottom[0]:

> Pfizer takes in about 40 percent of its revenue from sales in the United
> States and 60 percent from foreign sales. Yet, according to its 2014 annual
> report, Pfizer had about $17 billion in pretax income from overseas, and
> almost a $5 billion pretax loss here in the United States. By shifting
> profits overseas, Pfizer pays relatively low cash taxes compared with the
> nominal United States tax rate of 35 percent. Instead, much of its American
> tax liability is illusory, taking the form of an obligation to pay taxes in
> the future if it repatriates cash to the United States.

This leads to companies jumping through hoops to shift earnings income around
and to holding large chunks of cash off shore of the US.

This might be upsetting to some people who think corporations don't pay enough
taxes but it's not going to go away. The world isn't going to get more
protectionist, especially on the heals of TPP.

The US needs to deal with this.

[0][http://www.nytimes.com/2015/11/25/business/dealbook/why-
pfiz...](http://www.nytimes.com/2015/11/25/business/dealbook/why-pfizers-deal-
may-change-the-system-oftaxing-multinationals.html?_r=0)

~~~
kolbe
This is the type of thing where I feel absolutely ashamed of how impotent the
US is, despite its superpower status. I find it hard to believe that if we had
Andrew Jackson as president today, and Ireland and Bermuda were allowing US
companies to shield themselves from paying US taxes, that these tax inversions
and avoidance schemes wouldn't be quickly and swiftly resolved with extreme
prejudice. Ireland alone is costing the US maybe a hundred billion a year. Our
relationship with them is not worth that much. Throw sanctions on them. Make
Ireland pay taxes to the US. Don't recognize any IP of any Irish company.
Threaten them with bombings. Do something. While it is a "problem" that the US
has higher corporate tax rates, that's only an actual problem if the US lacks
the will or power to enforce those higher tax rates. And the US has the power.
And we look like a joke for letting little shit countries give companies back
doors to our tax code.

It's also a reason why I think a defiant blowhard like Donald Trump could make
waves as president. I don't think he'd have any problem dropping his sac to
break treaties and crack skulls.

~~~
alainv
Poe's law? Poe's law.

~~~
kolbe
Nope. I'm just a man with beliefs that most people today would call
antiquated.

~~~
alainv
Ok - can you elaborate why you so clearly favour aggression and blaming
Ireland rather than simple domestic legislation and general political will to
prevent these companies using other countries as tax havens?

~~~
kolbe
Sure.

I like the logic of trying to close it with domestic legislation, but the US
sucks at that. For one, congress and the president cannot ever seem to work
together to get anything meaningful done. But secondly, every single time we
think we make an exception or a rule in the tax code, we learn that crafty
investment bankers figure out how to exploit the rule. As Plato said, "know
thyself." And we suck at playing nicely.

Completely hypothetically, say we could kill tax inversions. The whole thing
has felt like a game of cat and mouse game for a century now. Inversions are
the tax-avoidance scheme du jouer. For example, for years, Pfizer has already
been paying virtually no taxes in the US by storing all of its IP in an
offshore subsidiary. The "double Irish" trick is being done by companies who
have never done an inversion. There are all sorts of holes in the tax code
that other nations use to fuck the US. And there's no way we can compete on
the rate, since we'd be competing with countries that have a 0% rate. Many
companies pay a zero percent corporate tax rate on all of their offshore
profits (which, IIRC, is attributed to a subsidiary in Bermuda), and mostly
claim to have nothing but losses to write off in the US.

We need to finally say, "fuck this nonsense." Companies don't need laws to
inform them when they're acting morally. It is immoral to act the way they
are, and instead of playing cat and mouse like we have been doing, we need to
put our foot down and MAKE every company obey the spirit of the tax laws, and
not the letter. And the only way I know of to make that happen is to use
extreme threats like invalidating their IP if they pull these tricks, or
threatening the countries that aid them.

------
jstalin
Leave it to the NYT to shill for more taxes and more government. Of course the
article doesn't mention _one single factual dollar figure_ about this
inversion, it only decries the horror. They estimate major inversions cost the
treasury $2 billion a year. Wowsa, that's a rounding error in a $4 trillion
annual budget.

I've encountered many deals where small foreign companies were looking at
doing business in the US but when we explained to them federal and state
corporate taxation they were discouraged from setting up shop here. I'm sure
there are hundreds if not thousands of similar stories each year. Instead of
reducing the US corporate tax burden (amongst the highest in the world) and
encouraging companies to set up shop here, the US tax code discourages such
investment and growth.

~~~
kolbe
Every tax discourages something.

~~~
dennisgorelik
I have no problem with discouraging alcohol, tobacco, heroine, cocaine, and
gasoline usage.

~~~
kolbe
Cool. That would get us a few billion of the five trillion we need to collect.

~~~
dennisgorelik
1) Total alcoholic beverages sales in the U.S. $211.57bn [1]

2) Why do we need to collect five trillion?

[1] [http://www.statista.com/topics/1709/alcoholic-
beverages/](http://www.statista.com/topics/1709/alcoholic-beverages/)

------
gesman
Maybe the bad thing is not in avoiding taxes but in dumb attempt of IRS to
charge high tax rates to entities who has enough resources to choose more tax
friendly jurisdiction anyways.

~~~
realityking
The tax rate is set by congress, not the IRS. How is this the fault of the
IRS?

------
acd
I think everybody should contribute to pay fair taxes if they are able.

Why should small companies pay taxes and big companies pay zero? Then the
small ones have to pay extra for those who didnt pay.

There are certain things with globalization that is definitely not good for
society, swapping profits for losses and paying zero tax is definitely one of
the issues.

These companies take advantage of infrastructure paid by other tax payers road
infrastructure, education infrastructure that brings skilled workers for them
to employ. So why is that certain organization leech and do not contribute
back equally?

------
yourepowerless
Considering those tax dollars go towards torture, murder, indefinite
imprisonment, war crimes, genocide, illegal surveillance, and other tragedies
I applaud any company which finds novel ways of resisting the tyranny of the
united States government.

~~~
ATsch
It also goes towards the roads and infrastructure the company and its
employees use daily.

I don't understand why people refuse to pay their countries membership fees.
They have no problem paying the fees for their gym, their sports club or their
phones, but as soon as they have to pay for the services their country offers
its okay to not pay?

~~~
charlesdm
I do. It has to do with value, not with price. Anything with a high price,
whether it's a good or a service, has a negotiable price tag. Not so much with
tax.

Say I make $25k a year, and I pay $5k in tax. I'm probably getting that back
in value (health insurance, roads, safety, etc).

Now say I make $100k a year. I'd probably be paying $30-45k a year in tax
(depending on the country). This is getting to the point where you're no
longer getting enough value for your $/€.

Third option, say you make $1M a year. On average, you now need to pay
$400-500k a year to the treasury of your country in tax. No way you're getting
that in value. Alternative: you structure things through a tax friendly
jurisdiction, and at the end of the road you only have to pay $150k instead of
$400k, legally.

Honestly, why would I pay $400k in tax if I can pay $150k? Tax aside, I'm
obviously still spending money in the country where I live (-> creating income
for businesses, increasing the taxable base of those businesses, who in turn
will pay full corporate tax).

~~~
goatforce5
> No way you're getting that in value.

Infrastructure was in place before you were born that gave you the
opportunities to succeed.

It's now time to pay that back(/forward?) so that others have similar chances
to succeed.

~~~
charlesdm
It was, but it would be in place regardless of whether you succeeded or not.
Maybe not historically, but today, whether I personally succeed or not doesn't
matter to the budget/deficit. Those who carry the taxable base are the middle
class; the employees who can't restructure their affairs.

Paying back / forward is great, but (imo) it has a limit. Unless you inherited
your wealth, most people who are self made will have paid a significant amount
of tax before they tax optimise their structures. So, if you’re a success, you
will have paid back your “debt” to society (and then some).

There needs to be a limit somewhere. Some countries are more aggressive (i.e.
the US) in collecting their tax dollars than others (i.e. the UK).

~~~
kuschku
"people who are self made".

There is no such thing.

A single child raised to finish college costs the taxpayer in Germany 300'000
Euro in subsidized nursery, free school, and free college.

Additionally, each person costs a lot for roads, public transit, etc.

And then you have to add in that for every person who gets to become a
billionaire, you have hundredthousands who won’t become billionaires, but
still cost you equally much. There’s no way to find out who is going to become
a self-made millionaire, and who isn’t.

And society already tries to provide many programs only to those kids with
high potential, to save money. Programs like this [1] are already exclusive.

If you want to give the generation of your kids the same chances at becoming
self-made millionaires, you have to provide all of them with this high quality
service.

Which means you have to accept nominal tax rates of 48%+.

    
    
        ----------------
    

[1]
[http://www.enrichment.lernnetz.de/content/information.php](http://www.enrichment.lernnetz.de/content/information.php)

~~~
charlesdm
> Which means you have to accept nominal tax rates of 48%+.

Except, you actually don’t. You are always free to move to a country with a
lower (or a higher) tax rate, for whatever reason.

If someone wants to go live in Monaco, and not pay anything, that’s his/her
right. There is never a debt, in the true sense of the word.

~~~
kuschku
Well, nice for quoting half of my sentence.

If you want that the next generation has the same opportunities, then you need
those taxes.

Without them, you won’t be able to provide intelligent and engaged children
(no matter their family’s wealth) with quality education.

~~~
charlesdm
Yes, absolutely. I totally agree we need taxes for the next generation. I just
don't believe 48%+ taxes are ever paid by the truly wealthy, only the middle
class.

Most wealthy people (people with net worths in the tens of millions and up)
pay rates closer to zero, by using every trick in the book. Or well, their
advisors do it for them. At most, they will pay the capital gains tax rate.

> Without them, you won’t be able to provide intelligent and engaged children
> (no matter their family’s wealth) with quality education.

Wealth does give you the freedom to send your children to the best schools in
the world, regardless of the country you live in. But obviously, that's an
extremely selfish view.

------
Animats
_" The $160 billion deal to combine Pfizer and Allergan, the maker of Botox,
does not appear to be illegal. But it should be. This merger is a tax-dodging
maneuver that enriches shareholders and executives while shortchanging the
public and robbing the Treasury of money."_

Wow. The Wall Street Journal editorial board sounds like Bernie Sanders. If
the WSJ is writing editorials like that, cracking down on offshore tax
avoidance is no longer acceptable to the business community. This is forward
progress.

~~~
jstalin
Except this is a NYT editorial, not WSJ.

