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Big Pharma received $127 billion of our tax dollars in 2014 through the federal programs Medicare, Medicaid, VA, and TRICARE. But just because they live on our tax dollars, doesn't mean Pharma companies want to pay taxes. Increasingly, they seek tax inversions, reincorporating in countries like Britain, Ireland or the Netherlands, often merging with a European entity to duck U.S. taxes.
This week, Pfizer's $160 billion merger with Dublin-based Allergan was scrapped because of new Treasury Department rules to stop such tax dodges. Pfizer, which calls itself the "world's largest research-based pharmaceutical company," is known for the blockbusters Lipitor and Viagra. Allergan is known for Botox, the high-tech drugs Alphagan, Restasis and the artificial tears eye drug Refresh.
The new Treasury rules disregard the U.S. assets acquired quickly by “serial inverters” like Allergan which made the Dublin based Botox maker too small to serve as Pfizer’s inversion partner. Moreover, the new Treasury rules limit what is known as "earnings stripping" to lower companies’ effective tax rates so the inversion would not have given Pfizer the tax deductions it sought.
Pfizer is far from the first Pharma company to want to take the money and run. In 2014, Illinois-based AbbVie sought to merge with ADHD drug maker Shire which is based on a small island in the English Channel. The deal would have made the drug duo bigger than Boeing or McDonald’s but was scrapped because of imminent new tax rules from the U.S. Treasury Department to stop such tax dodges. The same year, the U.S.'s largest pharmacy chain, Illinois-based Walgreen, also sought a tax inversion, but changed its mind when customers and lawmakers termed the move unpatriotic and unfair to corporations that remain in the U.S. (Patriotism concerns did not stop device maker Medtronic from the successful acquisition of Dublin-based Covidien to dodge taxes last year.)
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