If Republican leaders in Congress really want to fix our broken corporate tax system, as they’ve recently claimed, they should start by blocking what would be the biggest offshore tax dodge in American history.
By stopping drug giant Pfizer from changing its legal address to Ireland — and thereby avoiding billions of dollars in U.S. taxes — lawmakers would send a clear message to Corporate America: “Stop dodging your taxes. Start paying what you owe.”
The maker of ChapStick, Lipitor and Viagra, among many other health-care products, Pfizer last year announced a planned merger with the smaller Irish pharmaceutical firm Allergan. The combined company would still be directed and managed from the United States, but Pfizer could wipe out tens of billions of dollars it owes in U.S. taxes by adopting an Irish mailing address.
And Pfizer’s tax-dodging career didn’t begin with its proposed sham move to Ireland. It already has about $140 billion in profits stashed offshore on which it owes but has not paid any U.S. taxes. It uses accounting tricks to build up these foreign earnings, artificially diminishing domestic income and inflating overseas profits through intercompany transfers. Much of the loot is in 150 subsidiaries spread across 10 well-known tax havens.
Altogether, U.S. corporations hold over $2 trillion in profits offshore on which they’ve not paid a dime of U.S. taxes. The bulk of it belongs to Pfizer (the world’s second largest drug company) and a handful of other giant multinationals.
A dozen years ago, the United States essentially bribed these big firms with a huge tax cut on any offshore profits they brought home, hoping they’d invest in American jobs. Pfizer took greater advantage of this tax holiday than any other company — “repatriating” more than $35 billion. But instead of hiring anyone, Pfizer soon after laid off 10,000 American workers.
When big corporations like Pfizer dodge their fair share of taxes, we all pick up the tab. Simple math means their missing tax dollars lead to some combination of the following: taxes are raised on our families and small businesses to fill the gaps; public services deteriorate from lack of funding (potholed streets, crowded classrooms, insecure retirements); or budget deficits grow.
Pfizer is not only a tax dodger, it’s a price gouger. In the first few weeks of 2016 alone, Pfizer raised the list prices on its 60 overall best-selling drugs by an average of 10 percent.
In 2009, Pfizer was hit with a $1.3 billion criminal fine, the biggest in U.S. history at that time, for illegal drug marketing. An extra $1 billion in civil penalties made it the biggest healthcare fraud settlement up to then. Five years earlier, a Pfizer subsidiary was successfully sued for pushing “off-label” uses for a drug meant to treat epilepsy. Company salespeople told doctors the medication could treat conditions for which it had never been approved — everything from Lou Gehrig’s disease to migraines — even though it performed no better than a placebo.
It’s not too late for Congress to prevent Pfizer’s latest, greatest tax-dodging insult to the American people. Regulatory and shareholder review of its proposed merger will push the closing date well into this year.
Legislation already introduced in both houses of Congress would make these foreign address changes by American corporations more difficult by enacting some common-sense definitions. For example, a company controlled from the United States and doing significant business here would be considered American, regardless of its foreign mailing address.
Congressional action could even be bipartisan, since the Republican chairman of the Senate Finance Committee has said he is open to reform that would block the kind of deal Pfizer is trying to pull off.
And if Congress fails to act, President Obama should step in and have his Treasury Department close the loophole that Pfizer is planning to exploit to avoid the tens of billions dollars in taxes it owes on its offshore profits, as recommended by Americans for Tax Fairness.
Real corporate tax reform means getting American corporations to pay what they owe. As the poster child for corporate tax dodging, Pfizer needs to be reformed first.
