With the recent news that major pharmaceutical companies Pfizer and Allergan are going to join forces in one of the largest corporate mergers of all time, the United States is expected to lose out on billions of tax dollars. This is because Pfizer will relocate to Allergan’s home country of Ireland in order to save money on taxes.
While the United States is expected to be the big loser in the deal, the gains for the Irish will be tremendous. Last year, the GDP for Ireland was around $200 billion. Meanwhile, the combined market value of Pfizer and Allergan is more than $312 billion.
On Monday, Pfizer and Allergan announced a $160 billion deal that will bring the two companies together. By moving to Ireland, the Pfizer portion of the new company will greatly reduce its tax expenses. Ireland is known for having one of the lowest corporate tax rates in Europe at only 12.5%. By comparison, the corporate tax rate in the United States is 35%.
Warwick Business School Professor John Colley said, “The lure of tax advantages from a Dublin head office has been a significant factor in driving this deal. The threat of succumbing to US tax rates has meant that Pfizer has been desperate for a deal outside the US.”
The act of American companies relocating to Ireland for the purpose of saving tax dollars is nothing new. Many other companies have done the exact same thing in the past. The process is known as tax inversions, and the Irish have long insisted that they are not trying to encourage foreign corporations to come to Ireland.
Irish Finance Minister Michael Noonan said, “We are not pushing for inversions. We never promote inversions. It’s a decision for the two companies.”
However, Noonan also acknowledged that the two pharmaceutical companies were clearly merging for tax advantages. He added that he has no problem with this, since both companies already had operations in Ireland. The headquarters for Allergan are currently in Ireland, while Pfizer employs about 3,300 people in the country.
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