The treasury is moving to make inversions more difficult: http://www.usatoday.com/story/money...plans-new-move-deter-tax-inversions/76019666/ Kevin McCoy of USA Today doubts these will have any effect: http://www.usatoday.com/story/money/2015/11/20/pfizer-allergan-tax-inversion/76110712/ Fortune agrees: http://fortune.com/2015/11/20/why-new-tax-inversion-rules-wont-stop-pfizer-allergan-deal/ Meanwhile...Carl Ichahn wants to start a super PAC to force congress to get it's act together with the highest priority being corporate tax reform: http://money.cnn.com/2015/10/21/investing/carl-icahn-super-pac-to-target-congress/?iid=EL Geez I didn't realize Icahn is 79 years old. He should give his money to somebody younger and hit that rocking chair.
How has the financial community viewed the PFE/AGN merger: http://stockcharts.com/h-sc/ui?s=AGN Which is a very muted response it seems to me, considering PFE is looking at paying $370-$380 a share http://finance.yahoo.com/news/pfizer-allergan-merger-break-fee-215009364.html Note that Zack's has a Sell rating on AGN... i.e. they consider it overpriced. Also note that this is PFE's second attempt to buy an inversion partner. http://stockcharts.com/h-sc/ui?s=PFE So they're not viewing this whole thing to be in PFE's favor. If I half-way believe that the deal will go through or at least hang around until May I might consider a credit spread on AGN: May 280/290 bull put spread for a net credit of $355 Price................ Profit / Loss........... ROM % 210.00................... (645.00)............. -64.50% 250.00................... (645.00)............. -64.50% 280.00................... (645.00)............. -64.50% 281.14................... (531.40)............. -53.14% 286.45........................ 0.00................. 0.00% 290.00..................... 355.00............... 35.50% 320.00..................... 355.00............... 35.50% 355.00..................... 355.00............... 35.50% 390.00..................... 355.00............... 35.50% That would give a 35% return in 180 days with a risk/benefit of 1.8. If I was really convinced that the deal would go through I would do a 310/380 bull call spread: Price.................. Profit / Loss........... ROI % 232.50................... (2693.00).......... -100.00% 279.04................... (2693.00).......... -100.00% 310.00................... (2693.00).......... -100.00% 328.03................... (890.00).............. -33.05% 336.93........................ 0.00.................. 0.00% 377.02................... 4009.00.............. 148.87% 380.00................... 4307.00.............. 159.93% 426.01................... 4307.00.............. 159.93% 475.00................... 4307.00.............. 159.93% AGN closed at 312.46. The May $310 call is currently selling at $3,140 while the $380 call is selling at $4.47. I might do an Expectation analysis. BTW: all the bullshit in the world doesn't mean a thing if you can't make a buck on it.
How do corporations doing business in the US calculate income? I would hope revenue within the States would correlate with expenses of. Hopefully, they aren't expensing out-of-country items to reduce income.
No, they don't do that; it is illegal to do that. Expenses relate to taxable income. When Corporations file their U.S. Tax return they use tax accounting principals, following U.S. tax law and IRS regulations to produce an adjusted gross income (AGI) for the purpose of paying U.S. tax. That AGI will include all U.S. contact income and related expenses, including deductions for debt service, depreciation, and expense involved in the development, production and marketing of products that have U.S. contact (all or partly made in, all or partly sold in). That is different from GAAP accounting used to produce quarterly and annual reports required by the SEC and management information reports. An international company will include income and expense in a consolidated financial statement. This is not the same as accounting of AGI for U.S. tax purposes. A common distortion (Lie) in representing effective tax rates is to use the consolidated GAAP income number which includes all international sales and then use tax paid on U.S. contact sales, not include any tax paid on foreign sales and then say that the effective tax for the company is very low.
Just heard an interview on CNBC with Henry Blodget. He wrongly pointed out that moving a company to another country has essentially the same effect from a tax point of view as moving it from one US state to another. He clearly hasn't heard of Fiscal Transfers. It is nowhere near the same.
A basic way to reduce Corporate tax is to load the Corporation up with debt, take capital out and increase debt service expense thereby reducing taxable operating income. This can play out in inversion where the debt in the foreign operation is transferred to the U.S. operation, increasing foreign operating income at lower tax rate and increasing debt service in the U.S. operation reducing operating income. In the case of Pfizer/Alergen this is not the case as Alergen has very little debt. Alergen itself is the product of prior inversion; that is how it became an Irish Domicile. Bret Sanders, and Alergen C-Suite are actually located in N.J., quite close to the Pfizer C-Suite; these guys are neighbors, they did not send jobs to Ireland. Jack Lew's ideas, if they gain any traction, might get them all to really move to Ireland and then take R&D and support and eventually production with them.
http://www.bbc.com/news/business-34900344 So PFE and AGN have announced their merger. "the terms of the deal propose that the merged company will maintain Allergan's Irish domicile" http://www.latimes.com/business/la-fi-pfizer-allergan-merger-20151123-story.html "Sen. Bernie Sanders, the Vermont independent seeking the Democratic presidential nomination, called on the Obama administration to block the deal." "The deal values Allergan at $363.63 per share."
Well, with the PFE/AGN merger pretty solid I am still amazed at the lack of response of the financial community as expressed in stock price: http://stockcharts.com/h-sc/ui?s=AGN http://stockcharts.com/h-sc/ui?s=PFE http://blogs.barrons.com/stockstowa...ndervalue-allergan/?mod=yahoobarrons&ru=yahoo So I now believe that the merger was not JUST about avoiding US corporate tax rates. Having experienced PFE corporate culture I believe that AGN employees will rue the day they ever heard of Pfizer. Note on my stock charts: You may experience difficulty viewing them if you are not running an ad blocker. Unfortunately Stockcharts has decided to try to maximize revenue at the expense of usability. I could not use the internet without a robust ad blocker.