Poor Tax Policy Sends U.S. Businesses in Search of Friendlier Tax Climates

Published February 17, 2016

Pfizer, one of the largest multinational pharmaceutical companies in the world, recently announced plans to merge with Allegran, Plc, a pharmaceutical company based in Ireland.

The new merged corporation, worth a total of $160 billion, will move its headquarters to Dublin, Ireland to avoid the U.S. government’s “double taxation” of profits earned by overseas subsidiaries going to a domestic company.

Once finalized, the merger will be the third-largest corporate inversion since 1982, when the first inversion, involving a New Orleans-based construction company and a Panama subsidiary, was completed.

Strictly Business

Adam Michel, program coordinator for the Mercatus Center’s Spending and Budget Initiative, says corporate inversions are rational reactions to a broken U.S. tax system.

“There’s nothing illegal about a corporate inversion,” Michel said. “It is the process by which a corporation merges with a partner, another corporation, and moves their headquarters to the partner’s country.

“So in the context of the United States: A corporation with its headquarters in the United States merges with a corporation in Ireland, as is the case in the Pfizer-Allergen merger, and will reopen its headquarters … in order to lower its corporate tax rate,” Michel said.

Resisting Reforms

Richard Ebeling, a professor of economics at The Citadel, says resistance to reforming the U.S. tax code and removing businesses’ incentives to leave the country is based on stubbornness and greed.

“What is irksome for those in Washington, DC is here’s a company that is attempting to legally, under the international code, merely change its headquarters’ domicile to be under a different tax jurisdiction,” Ebeling said. “The people in Washington, DC do not like the idea that someone is attempting to avoid giving them wealth to spend the way they want, instead of the private citizens, and that includes the private corporate businessmen as well.”

Luke Karnick ([email protected]) writes from Indianapolis, Indiana.

The photo, “Pills and money,” is copyright © 2008 Ragesoss, and was made available under a Creative Commons Attribution-Share Alike 3.0 Unported license.