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On Monday, Pfizer and Allergan announced that they have reached an agreement to pursue the largest corporate inversion in history, a move which may allow Pfizer to avoid paying billions in taxes by pretending to be a foreign corporation.
The announcement came just days after the Treasury Department released a new series of regulations to curb corporate inversions. While the new regulations are helpful, Pfizer’s planned inversion is a stark reminder that to stop the flow of inversions, congressional, not just executive, action is required.
Pfizer’s move to invert is the latest in its long history of aggressive tax avoidance. As detailed in a recent report by Citizens for Tax Justice (CTJ), Pfizer is holding at least $74 billion in cash offshore to avoid taxes and discloses having 151 subsidiaries in known tax havens. Further, a new report by Americans for Tax Fairness on Pfizer’s tax dodging found that the company may have an additional $74 billion in earnings offshore, meaning that the company may be holding as much as $148 billion offshore. Unfortunately, the U.S. tax code enables corporations like Pfizer to pursue a business strategy of reducing taxes to as little as possible to boost their bottom line.
While some lawmakers say that nothing short of full corporate tax reform is required to stop corporate inversions, the reality is that Congress could stop inversions tomorrow with a pair of simple pieces of legislation. First, Congress could pass the aptly named “Stop Inversions Act of 2015,” which would not allow companies to claim to be foreign if the company continues to be managed and controlled in the United States or if a majority of the “new company” is still owned by the former shareholders of the original American company. Second, Congress could pass legislation like Rep. Mark Pocan’s “The Corporate Fair Share Tax Act” or the “Stop Tax Haven Abuse Act,” both of which would curb the main advantage of inverting, the ability to strip earnings out of the United States and into lower tax jurisdictions.
Until Congress passes legislation to prevent corporate inversions, Pfizer and other bad corporate actors will continue to exploit U.S. laws to avoid paying their fair share in taxes.