Pfizer Offers To Buy Foreign Corporation In Order To Avoid Paying More Taxes
Steve Wamhoff of Citizens for Tax Justice discusses how Pfizer avoids paying taxes and what can be done to reform corporate tax laws
ANTON WORONCZUK, TRNN PRODUCER: Welcome to The Real News Network. I’m Anton Woronczuk in Baltimore.
Pharmaceutical giant Pfizer has announced plans for a $106 billion takeover of British rival AstraZeneca, but their plans have been criticized by politicians and public interest groups on both sides of the Atlantic, who say the company’s takeover bid is a move to dodge U.S. taxes.
Here with us to discuss this is Steve Wamhoff. Steve is the legislative director of Citizens for Tax Justice.
Steve, thanks for joining us.
STEVE WAMHOFF, LEGISLATIVE DIRECTOR, CITIZENS FOR TAX JUSTICE: Thank you.
WORONCZUK: So, Steve, can you briefly explain how Pfizer’s takeover of AstraZeneca would allow it to reduce its tax obligations in the U.S.?
WAMHOFF: Sure, sure. There’s a law in place that is intended to prevent American corporations from reincorporating themselves as foreign corporations just to avoid U.S. taxes. And one way that corporations are finding a way to get around this is to merge with a foreign corporation and then claim to be–and then claim that the new entity is a foreign company that is not subject to U.S. taxes.
WORONCZUK: So do you consider Pfizer’s takeover as the culmination of a long-standing tax-avoidance strategy?
WAMHOFF: It may well be. You know, we know that pharmaceutical companies like Pfizer definitely do engage in a lot of maneuvers to avoid paying U.S. taxes on their U.S. profits. And this latest maneuver, this attempt to become a foreign company for tax purposes, will make it even easier for them to avoid taxes. I mean, we know that these companies have a long history of pulling all sorts of different types of accounting gimmicks to make it look like their U.S. profits are earned in places like the Cayman Islands or Bermuda, and this maneuver would make it much easier for Pfizer to get away with those things.
WORONCZUK: Yeah. In fact, many of Pfizer’s foreign earnings are actually made from products made and sold in the U.S. Can you explain how these profits end up in foreign bank accounts?
WAMHOFF: Right. So, oftentimes what an American corporation will do is they’ll have a copyright or a patent or some sort of intellectual property, and they’ll say that that intellectual property is held in a subsidiary company in a place like Bermuda or the Cayman Islands that doesn’t tax corporate profits. And then the American corporation will say, oh, well, we had to pay all of these royalties to this offshore subsidiary, and that’s why we don’t have any profits here in the U.S. that can be taxed.
Well, this is all nonsense, of course, that, you know, the subsidiary might be completely owned by the American corporation. You know. And oftentimes the actual schemes are much more complex and might involve many subsidiaries in a lot of different countries, but the overall effect of it is the same as what I’ve just described. I mean, these are all gimmicks that these companies use to get out of paying U.S. taxes on their U.S. profits.
WORONCZUK: So how much has Pfizer paid in federal taxes in recent years? And how does that compare to the ways that the company benefits from U.S. taxpayer money?
WAMHOFF: Right. So Pfizer is–the numbers that Pfizer makes public are very opaque. You know, these corporations, they do make some of their information public, and they file with the SEC. And when we look at Pfizer’s numbers, a lot of it doesn’t make sense. They say they have revenue in the U.S., but they say they have [incompr.] in the U.S. It’s confusing. It’s clear that they’re up to no good. It’s clear that they’re definitely engaging in various gimmicks.
You know, what we can say for sure is that we know that Pfizer has benefited from–I believe it’s over $4 billion of contracts with the federal government over the last four years. We know, obviously, Pfizer benefits immensely from programs like Medicaid and Medicare, which makes it possible for American individuals to buy their products. You know. And we also know for a fact that many of the products that Pfizer sells, the initial development have been in NIH, the National Institute for Health. So in many, many ways the public investments that are funded by American taxpayers are the investments that have made Pfizer’s profits possible. And now Pfizer wants to say that it has no responsibility to finance those investments.
WORONCZUK: So what reforms to corporate tax law should policymakers pursue in order to encourage U.S. companies like Pfizer to pay taxes?
WAMHOFF: Well, there are some proposals in the president’s most recent budget that would crack down on this practice. This is a practice that we call inversion, where corporations will claim to become a foreign company, even though the resulting–you know, the new entity that results from this is mostly owned by the same people in many cases. You know, the proposal that the president has put forward would say, look, if you merge–if you’re an American corporation and you merge with some sort of foreign corporation and the resulting entity is still majority owned by the same shareholders of the original American company, then we’re not going to recognize that–this new company as a foreign company. You’re still a U.S. corporation, because clearly the ownership has not changed.
The president’s proposal would also say that if the resulting company still has substantial business in the U.S. and it’s still managed and controlled in the U.S., then it is in fact a U.S. company. And that makes perfect sense. What we see here is companies like Pfizer that want to essentially fill out a couple of pieces of paper and then just say that they’re a foreign company, even though the ownership of [incompr.] company has not changed, the management is still in the United States, most of their business is in the United States [incompr.] a complete sham for them to say that they’re a foreign corporation. And the president’s proposals would say, no, we’re not going to do that, you are still a U.S. corporation, you will still be subject to U.S. taxes.
WORONCZUK: Okay. Steve Wamhoff of Citizens for Tax Justice, thank you so much for joining us.
WAMHOFF: Thank you.
WORONCZUK: And thank you for joining us on The Real News Network.
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