Pfizer, the American drugmaker known for its star pills Lipitor and Viagra, doesn’t want to be an American company anymore. In fact, it fancies an English accent. And it’s willing to pay (a lot) for it. Why would the New York-based company, founded in Brooklyn in 1849, want to live the expat life? It’s not the dolce vita, it’s the taxes.
This week Pfizer said out loud what it had been whispering in the ear of London-based drugmaker AstraZeneca for months—it wants to acquire the British pharmaceutical company to the tune of $100 billion. The reasoning, however, has less to do with AstraZeneca’s business plan and more to do with its address. If Pfizer can hammer out a deal—AstraZeneca has, so far, rebuffed their offers—the company will be able to cut its Brooklyn roots and reincorporate as a British company. “Doing so would allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers,” according to the New York Times.
Here’s what that means for Pfizer’s tax bill, via the Times:
There are several benefits of being effectively a British company. Pfizer currently pays an effective tax rate of 27 percent. Though it did not specify what the new rate might be, the British corporate tax rate is currently 21 percent and will soon fall to 20 percent. Analysts at Barclays estimated that for each percentage point less Pfizer paid in taxes, it would save about $200 million a year by reincorporating. People briefed on Pfizer’s discussions said that figure could be substantially higher. That means that Pfizer would be saving at least $1 billion a year in taxes alone.
Of course, it’s not that Pfizer doesn’t want to do business in the U.S.—it says it would keep its corporate headquarters in the U.S. and its listing on the New York Stock Exchange—it just doesn’t really want to pay taxes in the U.S. Or, as the Wall Street Journal puts it: “it would relocate largely in name only…” Pfizer, however, has already gone pretty far out of its way to avoid paying U.S. taxes, as the Journal reports, the company “has also left much of its profit from overseas outside the U.S. to avoid paying the taxes it would face if it brought the money home. Pfizer said between 70% and 90% of the nearly $49 billion in cash and equivalents the company has had on hand are outside the U.S.”
There are, of course, other non-tax benefits for Pfizer in the deal. Pfizer CEO Ian Read has stressed, the Journal reports, “that the main goals of the deal are increasing sales and eliminating redundant spending, not lowering taxes.” But, with the U.K. looking to aggressively lower its corporate tax rate to lure foreign companies coupled with political rumblings from Washington looking to crack down on the practice of corporate expatriation, Pfizer is looking to make its move before the political ground shifts below its feet.