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After years of being a bad corporate citizen, Pfizer is now seeking to renounce its U.S. citizenship entirely by reincorporating in Britain as part of its hoped-for purchase of British pharmaceutical company AstraZeneca. While the deal would allow Pfizer to claim on paper that it’s a British company, it would not require the company to move its headquarters abroad. In fact, the main effect would be to allow Pfizer to reduce its taxes to an even lower level than they already are.
While the audacity of this newest maneuver by Pfizer is striking, it’s not shocking. The company has a history of engaging in offshore income-shifting games. Over the past five years for example, the company has reported that it lost about $14.5 billion in the United States, while at the same time it earned about $75.5 billion abroad. Is the United States just a really bad market for Pfizer? It’s unlikely given that Pfizer also reports that around 40 percent of its revenues are generated in the United States. The more realistic explanation is that Pfizer is aggressively using transfer pricing and other tax schemes to shift its profits into offshore tax havens.
Despite its already low U.S. taxes, Pfizer has been aggressive in pushing Congress to preserve and expand loopholes in the corporate tax code. Over the past five years, Pfizer spent more than $72 million lobbying Congress. It reports that “taxes” are second only to “health” among issues it lobbies on. In addition to its own efforts, Pfizer has helped sponsor four different business groups (Alliance for Competitive Taxation, Campaign for Home Court Advantage, LIFT America and the WIN American Campaign) pushing for lower corporate taxes.
Over the years, Pfizer’s aggressive lobbying efforts have taken billions of dollars out of the U.S. Treasury, at the expense of ordinary taxpayers. Its biggest coup was the passage of a repatriation holiday (PDF) in 2004, for which it was the largest single beneficiary and ultimately saved the company a whopping $10 billion. On the state and local level Pfizer has also done very well for itself, receiving over $200 million in subsidies and tax breaks over the past couple decades.
What makes Pfizer’s tax avoidance efforts particularly galling is how it’s also happy to take full advantage of U.S. taxpayer assistance via government spending. From 2010 to 2013 for instance, Pfizer sought and received $4.4 billion in contracts to perform work for the federal government. On top of this, Pfizer has directly benefited from taxpayer funded research to develop drugs like Xelijanz, which was first discovered by government scientists at the National Institutes of Health (NIH). Finally, it’s worth remembering that without Medicaid and Medicare, Pfizer would lose out on billions from customers who would be unable to afford to purchase their drugs.
All this begs the questions of why Pfizer thinks it is worthy of profiting from taxpayer-funded research, corporate tax subsidies, and federal health care spending, but feels no corporate responsibility to pay its fair share of U.S. income taxes.
Congress, should it decide to do so, can easily put a stop to Pfizer’s offshore shenanigans. To prevent Pfizer, as well as companies like Walgreens, from relocating to another country to avoid taxes, Congress could pass a proposal by the Obama administration that would limit the ability of domestic companies to expatriate. It would nix any repatriation if a company continues to be controlled and managed in the United States or if at least 50 percent of the shareholders stay the same after the merger. To address Pfizer’s broader tax dodging, Congress should also require that companies pay the same tax rate on both their offshore and domestic profits, by ending deferral of taxes on foreign profits.
Photo of Pfizer Pill via Waleed Alzuhair Creative Commons Attribution License 2.0