Pfizer Lets Loose a Hornets’ Nest Over U.S. Corporate Tax Rates

Pfizer is bidding to acquire AstraZeneca in large part so that it can dodge the U.S. corporate tax rate of 35 percent by shifting its corporate headquarters to the UK, AstraZeneca’s home, after the acquisition and paying that country’s 20-percent rate. But in pursuing the merger, Pfizer has kicked a political and economic hornets’ nest that still hasn’t emptied.

May 16 2014 by Dale Buss

Because of Pfizer’s action, CEOs of other U.S. corporations have been put on notice that they’re being monitored for moves toward “inversion” of their headquarters for tax avoidance. And many previous such moves are being examined.

Politicians, including powerful U.S. Sen. Carl Levin, (D-Mich.) have already said they’re gunning for the tax “loopholes” that have led Pfizer and other companies to consider such a move. The U.S. is even talking about forming a six-nation alliance of G20 countries, including the UK and China, to fight corporations’ attempts to dodge national taxes.

“Pfizer’s investors could face a tax hit if the pharma giant goes through with the deal.”

Another complication is that Pfizer’s investors could face a tax hit if the pharma giant goes through with the deal.

Chrysler CEO Sergio Marchionne said earlier this year that he planned to move the headquarters of the new Fiat Chrysler Automotive to London, of all places, mainly to avoid higher corporate tax rates in Italy and the U.S. Italy’s rate is 31.4%. Even Russia, a socialist country, has rates lower than Fiat Chrysler’s home countries.

Meanwhile, an estimated $2 trillion in non-repatriated corporate profits are being held overseas because of the high U.S. rates. For head-scratching American policymakers, politicians and economists wondering why the U.S. economy has had so much difficulty gaining traction; one answer is that these are corporate funds that aren’t being plowed back into the home economy.