Pfizer-Allergan Deal Is Dead After US Tax Clampdown
One of the biggest drug manufacturers in the U.S., Pfizer, decided to abandon its plans of doing a merger with Allergan, an Irish-based company after the American government revealed that it will be enforcing major changes in its tax laws. According to the U.S. Treasury Department, they will be clamping down on "inversions," wherein US firms are seen merging with companies outside of the country in the hope of escaping higher tax rates.
According to BBC, the Pfizer-Allergan merger could have been the biggest example of an inversion if it was to push through. The expected value of the deal is reportedly $160 billion, but that amount, and the deal in general is no longer proceeding.
In the planned acquisition, Pfizer is supposed to transfer its main office in Dublin, obviously for the reason that the tax bill is substantially lower compared to the United States. As a matter of fact, the difference is more than half, since corporate tax rate in Ireland is put at 12.5% while the U.S. gets 35%.
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President Barack Obama is the biggest proponent of the inversion, even commenting that many companies are enjoying the benefits of being labelled as an American company, but they're trying to avoid fulfilling the duty of paying their taxes.
One of the most prominent acquisitions involved giant fast-food chain Burger King, which in 2014, bought Tim Hortons, a Canadian doughnut and coffee chain. The move allowed the American company to move its headquarters in Ontario, where it only needed to pay the corporate tax rate of 26.5%, or about five percent lower than what it has been paying in the U.S.
Because the deal has now been scrapped, it is unclear how Pfizer would proceed or what short of Plan B the company has in mind. And since the deal broke off, the American company is reportedly going to pay Allergan $150 million for the reimbursement of expenses during the process.
