http://www.latimes.com/business/hiltzik/la-fi-mh-pfizer-s-creative-merger-20151116-column.html http://www.americansfortaxfairness....hly-advantaged-and-falsely-reported-tax-rate/ http://www.latimes.com/business/hiltzik/la-fi-hiltzik-20140803-column.html http://im.ft-static.com/content/images/89217f94-0ca4-11e4-943b-00144feabdc0.pdf The Pfizer story is of some special interest to me since I spent about 5 years as a consultant to Pfizer working out of the 27th floor of their NYC headquarters. On some days the planes landing at LaGuardia seemed to pass just outside my widow. No, my specialty was NOT Taxes or Inversions about which I know next to nothing, but the creation and defense of the NDA (New Drug Application) and thus I spent as much time at the FDA in Rockville MD. defending Pfizer interests as I did in NYC. The interesting thing is that I, and the scientists with whom I worked, cared not at all about Pfizer's tax issues or it's corporate structure. If someone told us they might be domiciled in Ireland we would only have cared if we would have to go there for some reason. We only cared about molecular structure, drug efficacy, adverse reactions and, to some extent, competitive drugs.
Well, it is too bad that scientists and NDA jockey's have to worry about capital structure and tax issues. I don't think it right that they should. I think taxes should make sense from the point of view of raising necessary funds to pay for necessary government services with maximum efficiency of collection and minimum impact on economic decision making. That way people can pay attention to productive work issues. Unfortunately, that is not what our tax code has evolved into. It is a cesspool of political corruption, rent seeking, favoritism, social ideology and political budget politics illusions. The articles you post here and before are all biased and misleading. The ATF is a progressive left advocacy group; Michael Hiltzik who writes the LA Times articles you publish is a misleading hack who distorts the truth (as the ATF does) of what is really going on. Inversions are a legal response to our tax code that seeks to tax income that earned outside the U.S. and importantly has no contact with the U.S. That means the product was produced entirely outside the U.S. and sold outside the U.S. by its foreign producing subsidiary which paid all domicile taxes on its income in the country in which it is located and perhaps in the other countries where the product is sold, not the U.S. So, the independent subsidiary which pays its foreign taxes has an after tax profit. U.S. tax law says that the foreign subsidiary can declare the income in the year it is earned and pay the difference between the tax paid according to the foreign domicile and the U.S. corporate tax rate which is 35%, usually higher than anywhere else, or it can elect to defer that tax on the condition that it does not invest that profit in any way that has a U.S. contact. In that case they owe no further tax, but the law says they will have to pay a full 35% tax on that income if they ever try to return it to the U.S. or invest it with or in any U.S. company. That is not a hard choice to make; should I pay another 20% tax now or should I simply invest this money outside the U.S. and not pay any more tax. I can reinvest my profit in foreign expansion and if I want to invest in the U.S. I can use borrowed money...the cost of which will reduce my U.S. income tax burden further. This is not tax avoidance. Only an ideological idiot would call it tax avoidance. Its common sense. Gee, I decide not to shoot myself in the foot for no reason, you call it shameless tax avoidance eroding the U.S. tax base. That is crap, the law is just plain stupid. It is a tax penalty levied against multi-national business domiciled in the U.S. who wish to invest in the U.S. I ask you what idiot would want to structure a tax law like that? Its the don't invest in the U.S. tax law. So, inversions let U.S. domicile companies change their domicile by buying a smaller foreign company and making the foreign domicile the new company domicile. This allows the new company to invest its foreign retained profits back in the U.S. without a tax penalty. The U.S. company does not really have to move the headquarters to foreign location, it can locate minimum functions there and qualify for that domicile. This can reduce some other taxes outside the U.S. where there is contact with other nations from the new domicile not a U.S. domicile, but it will not change the tax on U.S. contact production and sale. Companies don't want to go through this distracting structuring it is just too much of a savings to ignore. It would be a waste of capital not to consider this. The reaction of Congress and the Administration is to make the minimum transfer of ownership and headquarter activities at the foreign domicile more substantial than current law requires. Think about that, they would make the Inversion structure move more U.S. assets to the foreign domicile out of the U.S. to qualify under the tax rules. This is stupid squared. You might as well call it the foreign company acquisition subsidy so they can buy U.S. domiciled companies and move the whole headquarter operation offshore. No more looking at planes landing at LaGuardia. Once you move the C suite abroad you might as well move all the close support groups too.
RANT: verb fulminate, go on, hold forth, vociferate, sound off, spout, pontificate, bluster, declaim;shout, yell, bellow; informal: mouth off "she ranted about the unfairness" noun noun: rant; plural noun: rants a spell of ranting; a tirade. "his rants against organized religion" synonyms: tirade, diatribe, broadside; literary philippic "he went into a rant about them"
Actually I agree with you. It's obvious that the tax laws are seriously flawed, and the responsibility of Pfizer's management is to maximize shareholder value. It's called capitalism, and to expect the management to have some kind of 'economic patriotism' to make up for the flawed laws and voluntarily pay more taxes than they must is silly. We might as well pass a cup for people to drop in spare change to pay off the deficit. What is this a prayer meeting?? The hand wringing is because Pfizer is more clever than the tax collectors, the flawed tax laws promote their finagling and they are good at it. The solution is as obvious as the nose on my face: close the loop holes and lower the rate. Problem solved. Now seemingly impossible after years worth of tangled webs and convoluted wrangling.
It is too bad you cannot resist the ad hominem, it is not necessary, especially when you say you agree with the main point; it detracts from your credibility. Pfizer, or any international company, structuring to lower their tax expense legally, is not justified only by the often cited 'duty to maximize shareholder value.' In the real world, as I am sure you know, that does not define management behavior. Maximizing shareholder value is an academic maxim that is of course true in the abstract but it can be interpreted so generally that it does not inform or explain management behavior. The reason you have to restructure is to remain competitive and to retain capital and free cash for the purpose of strategically expanding through M&A or expanding capacity. You need to do that because it will earn management bonus's and stock options and it will increase the value of the stock so that the options pay off. Companies like Pfizer are managed to enrich the 'C Suite' and we only hope that is consistent with 'maximizing shareholder value.' So, the reason you do inversion in Pharma is to increase usable cash flow and make valuable bonus's. Shareholders and Directors need to guard against excess in this point of view and make sure the shareholders get something too. I am not advocating that degree of cynicism, I am just saying it exists in practice. In fairness many international companies follow a middle way, less management selfish, considerate of all stakeholders; but that depends on the market dominance in the particular sector and context of the business. In defense of this self serving action, these companies have to compete in a global market which is moving quickly to commodity pricing and price control for pharma products. Markets are being squeezed, patents are weakened, generics define the market. The lucrative U.S. market is going the same way as the socialized medical markets. This reduces the singular attractiveness of U.S. for production and research, which is being outsourced. I have good friend who was executive directly involved in reducing 35,000 employees from the Merck headquarters in NJ and moving those functions around the world for lower cost in a structure that expects generic pricing. When you work on all your factors of production in order to increase your profit, maintain your profit, or increase free cash flow, you look at the big general expense categories....cost of operating capital equipment compared to modernizing; cost of labor from location to location; cost of labor productivity with old machines or new machines; cost of labor compared to capital cost of automation; cost of facilities by location; quality of work force; cost of energy; cost and availability of raw materials; tax cost related to location of operations. Tax cost is a big factor of production when you squeeze down the rest; you have to address it the same way you look at your other costs. There is nothing charitable or patriotic about it. Charity is what you do with surplus profit after tax and after capital investment back into the business; not instead of profit. The patriotic aspect lies in growing the business and maintaining the jobs and profits to the extent that you can; it never lies in weakening the enterprise by paying more for any factor of production than you legally have to.
I believe that comes under the category of: PONTIFICATE verb 2. express one's opinions in a way considered annoyingly pompous and dogmatic. "he was pontificating about art and history" synonyms: hold forth, expound, declaim, preach, lay down the law, sound off, dogmatize, sermonize, moralize, lecture Have you ever noticed people leaving the room when you start talking?? Makes one wish for a suicide booth:
Actually my responses are NOT ad hominem responses at all: https://en.wikipedia.org/wiki/Ad_hominem If I were attacking your character, your religion, your race, your height, your weight etc as a reason to discount your arguments I would be indulging in irrational, ad hominem attacks on your arguments. You, in fact, were indulging in ad hominem reasoning when you called "Michael Hiltzik ...a misleading hack who distorts the truth" as a reason to discount his excellent articles in the Los Angeles Times. You had no response to the factual material he presented... only an ad hominem dismissal of factual material inconvenient to your position. (Michael Hiltzik, by the way is a Pulitzer prize winner who has a regular column in the Los Angeles Times.) Do you have a regular column in the Los Angeles Times...or a Pulitzer??? Yet you think we should believe your unsupported and undocumented assertion after assertion...based on what??? I gave multiple references to make my points... and no opinions. You give multiple opinions and no references...none. Why is that??? When I say your arguments are mere pontification or that thay constitute an irrational rant I am attacking your arguments and not your motivation, character or ancestry. I don't say for example YOU are just a Dago pontificator... that would be ad hominem. If I would say you are an idiot, a blow hard, a stupid nerd who dresses like a clown...these would be ad hominem arguments. You may well be all those things but I have no way of knowing it So lay off the ad hominem defense... it's lame. (the defense... not the person...see the difference??)
My ad hominem objection to your commentary is appropriate. Your express posting speaks for itself. If you attached your opinion, I missed it. I don't know if you agree with Hiltzik or not; I don't know your opinion on the issue of 'Inversions.' I don't know your opinion on the corporate tax code, and the issue of how foreign earnings are taxed. You are right to say that I dismissed Hilzak's columns in an ad hominem way. I had no patience with has slanted writing. Inversions don't lower your taxes as he suggests; they leave you with the same U.S. contacts tax and the same foreign contacts tax. They do enable you to invest foreign after tax profits into the U.S. without paying a tax penalty. Since there is no compulsion to invest such capital in the U.S. that circumstance is not properly characterized as a tax avoidance issue. Mr. Hilzak well knows that Pfizer's representation of its taxable income and taxes owed and paid is accurate and consistent with U.S. tax law and GAAP accounting standards. They would be prosecuted if it were not. He also well knows that the ATF calculations do not accord GAAP rules or tax accounting and so are constructed, fabricated, by ATF for its own purposes as a well known progressive tax increase lobby pretending to be an objective think tank. If you want me to site a fact just ask what you want cited; the opinion is my own. I will not brag to you; you can rationally judge the credibility of the express argument by itself.
Well... I've lost interest in this exchange and will shut it down at this point. Ed Breen...on ignore.