How Much Ought Companies Pay? ; Governments Spar with Multinational Corporations over Fair Taxation

By Samuelson, Robert J. | Charleston Gazette Mail, December 4, 2015 | Go to article overview

How Much Ought Companies Pay? ; Governments Spar with Multinational Corporations over Fair Taxation


Samuelson, Robert J., Charleston Gazette Mail


WASHINGTON - Whoever wins the White House next year will have to deal with an issue of almost- impenetrable complexity and contentiousness: How to tax multinational companies? On the one hand, large global firms - which have never been shy about minimizing their taxes through deft accounting maneuvers - are becoming more aggressive. On the other, so are governments, increasingly desperate to raise tax revenues to pay for aging societies and cover persistent budget deficits.

The latest evidence of the unavoidable collision is the proposed merger between the American drug giant Pfizer and the smaller Irish pharmaceutical company Allergan a combination that, if realized, would create a firm valued at roughly $160 billion and would legally convert Pfizer into an Irish corporation.

The deal is driven in part by tax savings. Irelands basic tax rate on corporate income is 12.5 percent compared with a maximum U.S. rate of 35 percent.

The proposed merger attests to a sea change in American corporate attitudes and behavior. A decade ago, it was inconceivable that a huge bluechip American company would jettison its U.S. legal identity. Smaller firms with lower public profiles might do so though even that was frowned upon but it simply wasnt done by bigger, better-known companies. Pfizer is a long-standing member of Americas corporate elite. Its aggressiveness shows how the taboo has eroded.

Some math helps explain the shift. By 2014, Pfizer had accumulated $74 billion in uncommitted foreign profits that had not been repatriated to the United States, estimates Americans for Tax Fairness, a left-leaning advocacy group.

If Pfizer moved the money to the United States, it might potentially be taxed at todays rate of 35 percent. The bill would be about $26 billion. But the same profits taxed in Ireland might cost only about $9 billion. The $17 billion difference, the company says, could support more drug research, including in the United States where it is now concentrated, or payments to shareholders.

To many, this cold profit- maximization seems unpatriotic and predatory. The move to Ireland would occur mostly on paper. Pfizer says that its global operational headquarters would remain in New York while its principal executive offices would be in Ireland whatever that means. The tax switch is called an inversion. Heres how Americans for Tax Fairness characterizes Pfizers Irish inversion: With an inversion, Pfizer essentially would continue to enjoy all the benefits of being an American corporation but just not pay the taxes required for that privilege. …

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