More Bad Press in NYT For Pfizer as it Games the System, Flees the US & Sticks it to US Taxpayers!

Congress need to punish Pfizer for its outlandish behavior!

Deal Professor: Corporate Inversions Aren’t the Half of It
http://www.nytimes.com/2016/02/10/business/dealbook/corporate-inversions-arent-the-half-of-it.html?ref=dealbook&_r=0

From: NYT DealBook
By STEVEN DAVIDOFF SOLOMON FEB. 9, 2016

If you thought there was a problem with inversions — deals that allow American companies to relocate their headquarters to lower their tax bills — wait until you hear about the real secret to avoiding corporate taxes. It’s called earnings stripping, and it is a technique that the Obama administration has so far failed to stop.

The public outcry over the use of inversions is now entering its third year. Pfizer is trying the biggest one yet, a $152 billion deal for Allergan, the maker of Botox, which is based in Dublin. The flight of American icons like Pfizer has led to complaints that corporations are gaming the system to lower the taxes they pay to Washington. At the same time, the companies stay in the United States, getting all the benefits of our country. But the tax games don’t stop with a relocation to Ireland, Britain or anywhere with a lower corporate tax rate than the United States.

The real gains from an inversion can come from earnings stripping, and here’s how it works:

A company completes an inversion deal and moves its headquarters for tax purposes outside the United States. The now-foreign company still has operations in the United States. These American operations are still taxed in the United States and pay taxes here.

The point of the inversion, of course, was to reduce taxes as much as possible. So, the company arranges for the United States parts of its operations to borrow large amounts of money from the now-foreign parent. The indebted American subsidiary will pay interest on that debt to the parent. Under the United States tax code, the interest payment can be used to offset the American earnings.

Voilà! The earnings of the company are now offset by these interest payments. What used to be a significant tax bill disappears.

To be fair, the earnings-stripping option is available to any foreign company with earnings in the United States.

But it does appear that American companies that have inverted are particularly poor expatriates, willing to take aggressive acts to exploit this tax loophole. A 2004 study of 12 corporate inversions found evidence that after inversion, companies engaged in earnings stripping. The authors found that four of the companies had engaged in almost 100 percent earnings stripping, costing the United States Treasury roughly $700 million over two years. The authors also concluded that “most of the tax savings” found in corporate inversions was attributable to this earnings stripping.

The findings of this study were also confirmed in a 2007 Treasury study that said that there was “strong evidence” that inverted companies were stripping.

To put this more starkly, it means that not only do inverted companies often lower their taxes, they also eliminate large chunks of the United States taxes they previously owed. Indeed, the bulk of the benefits of an inversion may come not from the lower foreign tax rate but from substantially reducing taxes on the American subsidiary.

We don’t have figures on the latest inversions to know if they are engaging in this practice. But it seems unrealistic to expect that companies that took the bold step of renouncing their United States citizenship to move abroad would then not also seek to engage in earnings stripping. We’ll find out more over the next few years.

If you are an American taxpayer, it means the burden of making up lost revenue falls more heavily on you. It also creates an uneven playing field for other companies that end up feeling like fools for staying put. All in all, it highlights the problems of the United States tax code, which shows again and again how it just does not work in an increasingly global world.

Still, earnings stripping has some benefits. The American subsidiary must do something with the money it borrows. It may be that it invests the money in the United States in research or plants. But it is hard to see how this benefit offsets the corrosive nature of this tax maneuver.

The Internal Revenue Service has repeatedly adopted rules to make inversion transactions harder, trying to prevent these companies from leaving in the first place. Just last month the I.R.S. proposed yet another set of tighter regulations that included making it harder for an inverted company to relocate to a tax-friendly jurisdiction.

But these regulations do not address earnings stripping head on and they are not going to stop inversions. There is too much money at stake. Companies like Pfizer are still trying to flee the United States, and they will continue to find a way to do so as long as our tax system provides incentives to go abroad. Only if Congress acts to update the modern corporate tax system will the incentives be eliminated. And although Congress is quite aware of this issue on both sides of the aisle, it is still unlikely to act until after the presidential election at the earliest.

There have been legislative proposals for short-term fixes. In 2004, Congress engaged in its first attempt to legislatively stop inversions and limited companies’ borrowing for earnings stripping to 50 percent of their earnings in the United States.

A decade later, the Democratic senators Chuck Schumer of New York and Richard J. Durbin of Illinoisproposed that the 50 percent be reduced to 25 percent and that this limitation apply only to inverted companies. Their proposal also called for foreign companies to obtain I.R.S. approval for related-party transactions between the parent and subsidiary to ensure fair pricing so that the foreign parent did not overcharge the subsidiary to create more tax deductions.

But that legislative measure did not go anywhere, leaving the I.R.S. limited in what it could do.

Still, an influential article by Stephen Shay, a Harvard law professor, has argued that the I.R.S. could act by adopting regulations that would term this type of debt equity. Under the tax rules, this would mean that the payments from the American subsidiary would now be nondeductible dividends rather than interest payments, ending this type of earnings stripping. The I.R.S. has said it was considering adopting earnings stripping rules in the near future, and this could be it.

But for now, rules limiting this type of behavior seem to be a pipe dream. Instead, the corporate runaways are winning — winning no good-American awards, but taking easy money out of the pockets of the United States taxpayer.

Steven Davidoff Solomon is a professor of law at the University of California, Berkeley. His columns can be found at nytimes.com/dealbook. Follow @stevendavidoff on Twitter.

 

Listen buddy, the American taxpayers on this message board have made it clear that Pfizer lowering it's taxes by any sleazy way possible is OK with them, even if they will have to pay extra taxes to make up the difference or live with the program cuts. This is the American Way.

I just read that in the U.S., one-tenth of the top 1 percent owns as much wealth as the bottom 90 percent combined. But we still need to keep giving tax cuts and handouts to that one-tenth of the top 1 percent. After all, a tiny proportion of what we give them might trickle down. Again, this is the American Way.

Natural selection at work.............

 

Why are you surprised? Your CEO is a Brit who met the King of Sleaze. Together they're all in to line their pockets, gut the American employees and laugh all the way to the bank. They ARE the 1% and all
The bozo clowns who voted for Obama are equally reprehensible. What really makes me sick is that Obama has the ability to stop them
In their tracks by shutting them out of Medicare. No Congress, No IRS . Hit them where it hurts. But, go vote for Bernie Sanders, who will make sure that in the process, no new drugs are found and everything is government regulated. And don't forget to tell
Your kids that you're proud to be American.

 

My thoughts on this? Me thinks the OP is responding to his own post, is a loser with nothing better to do with his time. Kind of sad actually

 

Look who is running things in this country and you have your answer. Cannot wait until he is out.

 

Trumps meeting Read to iron it all out. Ian and Donald are buds !

 

LOL ... and if I had wheels I'd be a wagon.

 

Don't worry about a thing. Trump is going to make America great - he says so himself! Don't think. Don't use your brain. Just vote for Trump in November, the way you voted for Dubya. After all, that 8 years of Dubya was so perfect!

 

So glad I am retired and my finances will not be decimated by the next politician who gets in there. Enjoy paying your taxes. I gave up 'deductions."

 

This is what happens with liberal tax policies. Look at GE over in Connecticut. The libs there kept saying they were going to raise taxes. GE threatened to leave if they did so guess what. The libs raised them and GE said "adios MOFO" and will leave that area in shambles. GE was a huge employer, tax payer and driver of that economy. Doesn't just affect GE employees. This will affect every small business in that area that relied on GE employees who will now be gone or unemployed. They are now off to Boston because they gave them incentive to come there. Washington DC suburb is complaining that Wal-Mart is backing out of their deal to bring stores to that area. Well, since that time that the deal was signed, that area raised minimum wage and now has a fund that all employers have to pay into in order to cover family leave. Wal-Mart looked at that and decided they don't want to be subjected to those liberal ridiculous taxes. Wake up people. You can only spend so much of someone else's money before that runs out. I don't blame these businesses one bi.

 

As famous heiress Leona Helmsley put it: "only little people pay taxes". Why should giant corporations like GE and Pfizer pay their fair share? Let the middle class pay for all those mega-expensive Republican legacies like 9-11, the Iraq war and Medicare Part D.

 

Once an American icon like Pfizer makes the decision to renounce its citizenship we the United States of America should not allow them to come back. They should face the same penalties a United States citizen would face if they renounced their citizenship.

It's a sad day in America that we allow them to get away with this shit.

 

The democratic debate on CNN right now Hillary and Bernie are talking about not letting corporations game the system.

 

Ironic coming from Hillary, who has spent her life gaming the system and believing she is above the law

 

Look, all Pfizer did was loan an Irish company billions of dollars so they can buy us, then rename themselves Pfizer and be run from Pfizer New York with a token HQ in Ireland. It may smell bad and look sleazy but it's just business as usual. In 5 years time our token HQ will probably be in Ethiopia or Bangladesh.........

 

Our HQ could be on a ship that sails and never reaches any port.
Or maybe someday it will become hip to invert yourself to Syria and pay ISIS the taxes.
Why not invert yourself to Mars and tell the US government you are moving there for the $0 martian tax rate?

This shit is completely bogus and should not be allowed. Pfizer has no soul and no sense of heritage and should be ashamed for this low class ghetto act. It's not like they were going to go bankrupt or something. It's about win-at-all-costs greed. It's too bad more people don't care.

 

http://www.bloomberg.com/news/articles/2016-03-14/allergan-vows-to-pay-golden-parachute-taxes-after-pfizer-deal?cmpid=yhoo.headline

 

We should not let Hillary and Bernie game us.

 

http://m.nasdaq.com/article/pfizer-ceos-2015-total-pay-valued-at-18-million----update-20160315-01212

 

Pfizer is a for profit company so dump any country that wants to take your profit. Tell that country to stop taxing and spending.