More Inversion Perversion

Here's a turkey just in time for Thanksgiving.  The huge American pharmaceutical company Pfizer is up to it's tricks again:

Pfizer Inc on Monday said it would buy Botox maker Allergan Plc in a deal worth $160 billion to slash its U.S. tax bill, rekindling a fierce political debate over the financial maneuver.

The acquisition, which would create the world's largest drugmaker and shift Pfizer's headquarters to Ireland, would also be the biggest-ever instance of a U.S. company re-incorporating overseas to lower its taxes. U.S. President Barack Obama has called such inversion deals unpatriotic and has tried to crack down on the practice.  (our emphasis)

You may recall a series of these corporate tax- dodging "inversion" deals from last year (one of which involved... Pfizer).  Alan Sloan provides some perspective:

Assuming this deal goes through, Pfizer PLC will pay lower income taxes while continuing to enjoy all the benefits that it and its employees derive from being in the United States. The U.S. corporate tax rate is 35 percent, compared with 15 percent for Ireland. But Pfizer, like many U.S. multinational companies, uses a variety of strategies to lower its tax rate considerably.

This is a very scary transaction. Not only is Pfizer big and prominent — it would become the first foreign member of the Dow Jones industrial average, the quintessential U.S. market indicator — but it takes tax avoidance to a whole new level. Once people examine the technicalities underlying this deal, other companies may well be inspired to structure their desertions the same way Pfizer has.

Because of the deal’s structure, as I will explain in a bit, Pfizer PLC will be able to play amazing tax games. Among other things, it will be able to get its hands on about $70 billion of profit it has held offshore to avoid paying U.S. income tax on it. Now, it will be able to access the cash without paying the tax. And it will probably be able to add to its reported profit some or all of the $20 billion it has set aside on its earnings statement for U.S. taxes on those foreign earnings — taxes that will now never have to be paid.  (our emphasis)

Doing a little checking here =taptapclickclick= 35% (current U.S. corporate tax rate) of $90 billion profit equals $31.5 billion maximum tax liability avoided.  Now that's a real "taker!" Check out the rest of Sloan's article (but take your blood pressure medication first).

Thinking that Congress will do anything to stop this type of corporate tax weaseling would be to grossly misjudge our compromised legislative branch.  Speaker Paul "Lyin'" Ryan (R- Galt's Gulch) is probably handing out Pfizer checks on the House floor right now.

Treasury To Issue Rules On Inversions

American corporations that attempt to avoid taxes by merging with or acquiring a foreign company and moving overseas ("inversions") aren't going to have such an easy time of it, thanks to rules the Treasury Department is putting in place:

New regulations from the Treasury Department will make these co-called corporate inversions less lucrative by barring creative techniques that companies use to lower their tax bill. Additionally, the U.S. will make it harder for companies to move overseas in the first place by tightening the ownership requirements they must meet. 

"This action will significantly diminish the ability of inverted companies to escape U.S. taxation," Treasury Secretary Jacob Lew said. He added that for some companies considering inversions, the new measures would mean inverting would "no longer make economic sense."  [snip]

Three new measures will seek to stop companies from finding ways to access earnings from a foreign subsidiary without paying U.S. taxes, including "hopscotch" loans, in which companies shift earnings by lending money to the new foreign parent company while skipping over the U.S.-based company. 

Another rule change would make it harder for merged or acquired companies to benefit from lower foreign taxes by tightening the application of a law that says the American company's shareholders must own less than 80 percent of the new, combined company. The administration would like to reduce that percentage to 50 percent, but that will require legislation. In the absence of legislation, the administration says its new rules will make it harder for companies to get around the 80 percent requirement by prohibiting certain arrangements, such as a firm making large dividend payments ahead of the acquisition to reduce its size on paper. 

The rules, being drafted now, will be effective retroactively to today.  As one might have expected, the Chamber of Horrors Commerce has ads out denouncing the rules and deceptively comparing them to imposing taxes retroactively on the average American taxpayer.  [Cue chorus of tiny violins.]

Is it any wonder why "greed" is the first word Americans think of when "corporations" are mentioned?

Walgreen Decides Inversion Isn't For Them After All

Looks like one of the corporate tax evaders inverters has had a change of heart:

Growing political heat and possible customer backlash helped dissuade Walgreen from trying to trim its tax bill by reorganizing overseas as part of an acquisition.

The nation's biggest drug store chain, Walgreen noted that public reaction played a part in its decision:

Walgreen Co. said in a statement that it was “mindful of the ongoing public reaction to a potential inversion” and its “unique role as an iconic American” retailer.

The public, the President and Democrats need to continue to push/ shame the other companies that have inverted (Garmin, Carnival, Pfizer, for example) or are in the process of inversion.  They're nothing but glorified tax cheats and need to be called out on it as often and as loud as possible.

Corporate Inversion Perversion, Cont.

Corporate inversion and "fidouchebags."  Love it.

The Daily Show
Get More: Daily Show Full Episodes,Indecision Political Humor,The Daily Show on Facebook

More On The "Inversion" Perversion

A few weeks ago, we posted on an article in the once great Washington Post Bezos Bugle by Allan Sloan, blasting the corporate trend know as "inversion," which is a fancy term for "corporate tax dodging."  Recently, it's become the topic du jour among policy makers and economists alike.

Paul Krugman explains the notion and why Congress needs to act:

The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another. [snip]

And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No. 

Treasury Secretary Jacob Lew describes the President's proposal to plug the inversion loophole:

The president’s proposal applies a common-sense approach to determine whether a corporation has truly switched its base of operations to another country — a company would not be able to move outside the United States for tax purposes if it is still managed and controlled in the United States, does a significant amount of its business here and does not do a significant amount of its business in the country it claims as its new home. 

The president’s plan also would eliminate the incentives a U.S. corporation has to acquire a foreign company and use its foreign address to claim tax status beyond our borders. To make sure the merged company is not merely masquerading as a non-U.S. company, shareholders of the foreign company would have to own at least 50 percent of the newly merged company — the current legal standard requires only 20 percent.

While the Senate is holding hearings on the subject, there's no consensus on how to proceed.  Inverters want to slow-walk this past the November elections when they hope there will be a more favorable (=cough= Rethuglican =cough=) climate in the Senate.  Frankly, there appears to be even less appetite in the monkey house House of Representatives for plugging the loophole.  But at least the debate is out in the open now.