American big business now faces the G20 in a fight for $2.1 trillion in unpaid taxes
LONDON: Less than two months ago, the finance ministers of the G20 gathered for a celebratory dinner in Peru to mark agreement on a “once-in-a-century” package of reforms to combat tax avoidance by multinational corporations that is costing governments up to $240 billion (almost ₹16 lakh crore) a year. But last week a Scottish accountant unveiled a record-breaking $160 billion transaction that laid bare quite how much work remains to be done.
Ian Read, chief executive of American drug maker Pfizer, has agreed plans for a so-called “tax inversion”: a takeover deal that involves joining forces with a smaller, foreign rival and assuming its overseas headquarters for tax purposes. The deal — largestever tax inversion— is expected to create the world’s biggest pharmaceuticals company. Read’s target is Allergan, itself the product of a rapid succession of tax-driven mergers. For tax purposes, however, Allergan has an advantage: it is able to tell the US authorities it is an Irish multinational and Pfizer has structured its affairs so as not to pay tax in the US.
Pfizer has already structured its affairs so as not to pay tax in the US: it has recorded losses in America every year since 2007. In fact, Pfizer has been one of America’s most proficient taxplanning multinationals for years, parking $74 billion of untaxed profits outside the US. That sum is equivalent to more than 35% of Pfizer’s stock market value
In total, US multinationals are sitting on an estimated $2.1 trillion in untaxed offshore profits, a third
of which is accounted for by just 10 groups – among them Pfizer. The drug group’s chief financial officer, Frank D’amelio, spelt out the real tax prize for Pfizer on a call with a Wall Street analyst last week. “This [Allergan deal] significantly increases our access to global cash,” he said.
Read’s plans, however, have brought swift condemnation from politicians. “For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes,” said Democratic presidential candidate Hillary Clinton.
Read professes to be baffled. “I cannot comprehend why [the deal] is not being applauded by the political class, or why anyone would want to frustrate this transaction,” he told the FT.
The political sniping about Pfizer provides the backdrop for another battle over tax issues on Capitol Hill next week. Many influential Republicans are expected to launch an attack on the European commission’s ongo ing investigations into suspected sweetheart tax deals granted by EU nations to Apple, Starbucks and Amazon.
Well-resourced rightwing lob byists are agitating in Washington for a final push against the G20 tax reforms. Led by the National Association of Manufacturers (NAM), they particularly want to block so-called country-by country reporting (CBCR). Under CBCR, basic business data, bro ken down by geography, will be submitted privately to tax authori ties around the world.
Pascal Saint-amans, head of the OECD unit that led the G20 reforms, played down suggestions that political pressure could derail them. “I think the answer is this is not a big moment. It’s largely about an internal US debate.”
Stephen Shay, a senior lec turer at Harvard law school who has held major tax roles in the Treasury, also believes Congress will not stand in the way of CBCR “It’s too late. I think what the poli ticians are going to be told by the responsible businesses is that the bus has left the station.”