Pfizer to Terminate $160B Merger with Allergan

Honestly, we're better off bringing the money home rather than letting it fester abroad.

Yes but what did employees of these companies pay in taxes?

That's because Pfizer reported a net loss in 2012. I don't know the exact details, but Pfizer is headquartered in NYC and most of it's R&D is US based as well.

And Pfizer had several major settlements with the IRS based on audits from previous years. That's right, the gov't audited Pfizer's returns and gave billions back.[1]

[1]http://www.taxanalysts.com/www/features.nsf/Articles/8A8A34F...

When you have a system where profit is taxed, you get companies investing the money in the most risk free thing they can, to avoid the profit tax. If profit tax is 0% it's far simpler to keep the money home, and to use it when they want to.

(1) stashing income derived in US somewhere offshore

(2) not repatriating income derived outside US back to US

If doing (2) entails additional taxes, why would rational multi-national corporation do that? Because America? The solution is to revise the tax code in such a way that income derived and taxed elsewhere would not be taxed again.

Take Apple for instance; they have a giant pile of cash that sits in bank accounts all over the world. Why should they move it back to US, pay huge taxes and let it sit in bank account back in US? That's irrational.

There are other issues involved: what are the actual tax rates companies are paying (too low!) and tax dodging all over the world (happens all the time! didn't Google just settle with EU?) but they are somewhat orthogonal.

The main issue is that US will tax one's profits again once they are moved back to US. Even if they profits are legally derived in another country and taxed in that country.

That would be because Pfizer legally had no profits. Apple has a 15-39% tax rate (almost certainly closer to the latter), not a 3.7% tax rate, because that's the law in the U.S.

> Like most Fortune 100 firms, through legal maneuvering, Pfizer has been offshoring profits for years in order to avoid paying US taxes.

They do this because U.S. corporate taxes are absurdly high. Of course, it's only convenient for large multinationals to avoid taxes in this fashion; those same high rates bite their smaller competitors badly, making them far less profitable (imagine having to pay nearly half of your profits in taxes annually!). The situation works out well enough for the large companies.

About the only method to force payment of a tax on a sale or service is sadly through something similar to a VAT. Then remove any income tax paid.

Still a better solution would be a low, 15% or such, flat tax which has no deductions

It isn’t just about finding creative ways to not pay money, it is about companies practically working their tax accountants to death in order to do it.

I knew someone who worked in taxes for a huge company and it was utterly insane: he worked, nearly literally, all the time: like 6 am to midnight, 7 days a week, for the entire damned quarter. Then the company thinks they’re doing them some kind of favor by giving them like ONE day off before they start feeling pressure to begin work on the next quarter’s numbers. All about the numbers. He described all these tricks used to shuffle things around the world. And those people were suffering mentally as well: I heard about constant screaming matches at work, colleagues on average ending their relationships in divorce, etc.

http://services.corporate-ir.net/SEC/Document.Service?id=P3V...

Yeah, but not that much savings. The calculation is complicated, but taxpayers usually don't recuperate more than 5-10% of their qualified research expenditures for the tax year. Not to mention the difficulty in evaluating and calculating precisely what business components qualify for the credit. Most firms spend only a fraction of their revenue on qualified research activities, so their profits generally dwarf QREs. Pfizer would have to spend something like a trillion dollars on R&D in order to repatriate all of their current offshore profits without paying any tax on it.

Let's take a concrete example. I'll use the regular research credit calculation since they've been in business long enough and have enough base years. They currently spend around $6.5bn on R&D, that's down from an average of $8bn in the prior five years. Let's assume all of that is qualified, even though it very well might not be due to the large number of exclusions in IRC sections 41 and 174. I'm too lazy to look up Pfizer's aggregate gross receipts in their financial reports, but a quick google search shows their annual revenue at around $50bn, which should be close enough and I'll pretend that's been consistent for the five preceding years. That's $8bn * 5 base years = $40bn aggregate base year QREs. Divided by $250bn base year aggregate gross receipts gives us a fixed based percentage of 16%, which happens to be the maximum allowable amount. We multiply that by the average aggregate gross receipts for the base years, giving us a base amount of $8bn. We then select the greater of the base amount or 50% of current year QREs ($3.25bn), so we pick the base amount. We then can take the credit for 20% of the excess of the current year QREs over the base amount, which in this case is negative $1.5bn, so Pfizer can't claim the credit at all.

Even if we were to fudge the numbers more optimistically in Pfizer's favor, they are looking at a best case tax credit in the range of a few hundred million dollars, when they have a couple hundred billion in profits that they need to repatriate. In order to repatriate that much money without paying taxes, Pfizer would need to incur massive losses. There simply aren't enough tax "loopholes" for Pfzier to deduct or credit its way to a zero tax rate.

On top of that, what do we get in exchange for foregoing all corporate tax income that we currently receive? I have yet to see a compelling argument showing how this won't just be another trickle-down economics ploy that actually accelerates wealth inequality. Yes, I know the proposal is to kill corporate taxes and also increase capital gains taxes, but how is that better than just leveling the playing field so that all US corporations are taxed equally? I'm genuinely curious if there's a strong economic argument here beyond "everyone else does it this way".

"It's time we eliminated the corporate income tax and made up the shortfall by increasing capital gains taxes. Here's the logic: First, the corporate income tax favors big companies that are able to shift their income abroad and engage in other tax-avoidance activities, while harming small companies that can't do any of this and therefore suffer a competitive disadvantage. Yet small companies are the engines of job growth in America. Second, the people who actually pay the corporate income tax should properly be the company's shareholders, who are the legal owners of the company and who benefit from increases in its income. But in many cases, depending on the structure of the market, a significant share of the actual burden of paying the corporate income tax is often borne instead by employees in the form of lower wages, or consumers in the form of higher prices."

It sounds like a good idea, but capital gains are already high. My aunt lives in a house she bought for $25,000 in the 70's. She is far from well off. It's a crime what she's going to pay on capital gains if she sells her house.

Yea, I know about the ways around the tax, but they have downsides.

I'd be for this, if capital gains were tied to income. Maybe tied to the average income over the last 10 years?

Right now it's the same rate for a billionaire, and the old lady surviving on social security. My aunt is taking the same percentage tax hit on the sale of her investment as the billionaire?

The interesting part is they never updated the tax, so you can buy fully automatic weapons now (if made before 1986) and you pay the $200 tax on a weapon that is north of $10,000.

No they won't. We should still abolish corporate income tax though.

Yeah probably not. Don't underestimate the regulatory power of the dollar.

Exactly. All this does is send lawyers and accountants back to the drawing board to figure out the next best option.

The only winners here are the politicians who can claim they are "tough on big business".

The only way that would work is if the "top income brackets" started at $75,000 per year.