Pfizer merger plan raises issue of corporate tax shifting

A run of multi-national corporate mergers including Pfizer’s takeover of AstraZeneca and a shareholder petition to be presented to the Google annual meeting Wednesday are set to refocus attention on the issue of corporate tax shifting.

Google to face dissident shareholders wanting 'voluntary' commitments on paying tax

Pfizer CEO Ian Read prepares to be grilled on Tuesday by British lawmakers about his takeover bid for AstraZeneca. He avoided making a commitment on job cuts over the deal, which raises questions about corporate tax-shifting. (Matt Dunham/Associated Press)

A run of multi-national corporate mergers including Pfizer’s takeover of AstraZeneca and a shareholder petition to be presented to the Google annual meeting Wednesday are set to refocus attention on the issue of corporate tax shifting.

Pfizer is facing demands from the British government that it guaranteed jobs and R&D spending in the U.K. if it goes ahead with its $106 billion US takeover bid of the rival pharmaceutical company.

But U.S. legislators are even more worried about the deal, which would see the merged holding company domiciled in Britain, while its headquarters remained in the U.S.

That structure would allow Pfizer to escape the comparatively high 35-per cent U.S. corporate income tax rate for what a company spokeswoman called “a more efficient tax structure that doesn't subject AstraZeneca's non-U.S. profits to U.S. tax.”

In a global atmosphere in which multi-nationals move their profits to low-tax jurisdictions, the merger seems less like an opportunity for synergy and more like a tax-driven deal or inversion, say critics. The U.K. corporate tax rate is about 21 per cent.

Google faces dissidents over tax issue

On Wednesday, a group of activists called the Domini Social Equity Fund will raise the issue of corporate tax avoidance with a proposal to be placed before Google’s annual shareholder meeting.

Google CEO Larry Page is to face questions Wednesday from a dissident shareholder group who want the company to spell out its approach to paying U.S. tax. (Seth Wenig/Associated Press)
The proposal, registered with the Securities Exchange Commission, asks Google to establish a set of principles guiding its approach to paying taxes.

Google has not engaged with the shareholder group, but has pointed out that its tax provisions are legal.

The dissident shareholder group says this is more of a moral issue.

“Just as we would expect Google to follow consistent standards globally regarding bribery, child labour, greenhouse gas emissions and non-discrimination, we believe Google would benefit from a set of principles to help it navigate the complexity of local and national tax systems,” they said in an SEC filing.

Lobby group says that Google has shifted profit to shell companies in Bermuda, Ireland and elsewhere to shelter at least $33 billion of revenue from taxes.

“Governments are cutting essential public services and tax avoidance means ordinary people have to pay the price for massive profits being funnelled away into tax havens,” says an online petition by demanding Google pay more U.S. tax.

Research firm Audit Analytics said recently the amount of profit being moved offshore by U.S. companies has risen by 70 per cent in the last five years and hit nearly $2 trillion in 2013.

Pfizer cited in tax avoidance study

Google is one of dozens of U.S. companies cited by U.S. think-tank the Public Interest Research Group in its study earlier this year of U.S. companies making liberal use of tax havens.

Pfizer was another. PIRG, which has lobbied congress for laws that would limit profit-shifting, says Pfizer operates 174 subsidiaries in tax havens and currently books $69 billion in profits offshore.

The AstraZeneca merger gives further opportunities to load up the U.S. business with tax-deductible debt and move earnings to lower-tax jurisdictions, according to Reuters.

Pfizer CEO Ian Read made a commitment to the British government Tuesday to keep building a research hub if the AstraZeneca deal goes through, but made no promises not to cut jobs.

Democrat Sen. Carl Levin called executives from Caterpillar, Apple and other companies to Capitol Hill to account for how few taxes they paid in the U.S. (Susan Walsh/Associated Press)
In the U.S., Pfizer has successfully deferred tax on its earnings under a law that lets companies shelter overseas earnings from U.S. taxes by keeping them out of the U.S., according to Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations.

Levin is working to close the loophole by changing that law, though a change is unlikely in the current stymied American political system.

“It’s become increasingly clear that a loophole in our tax laws allowing these inversions threatens to devastate federal tax receipts. We have to close that loophole. I am talking to my colleagues about legislation to close the loophole, which I intend to introduce soon,” he said earlier this week.

Levin has led tax investigations into Apple, Microsoft, Credit Suisse and Caterpillar for inversion or tax-shifting, including forcing Apple’s Tim Cook to testify before Congress.

There is plenty of opposition to corporate tax tactics in political circles, but few effective methods of stopping it.

The OECD, the G20 and the Obama administration have recently expressed concern about corporate tax-shifting policies. The OECD concluded only a collaborative international plan would work, arguing otherwise companies just change jurisdictions, restructuring themselves to avoid paying taxes.