Undermining the company's rationale for a Big Pharma mega-merger that would allow it to dodge paying what it owes in taxes, a new report shows that, in fact, Pfizer has "dramatically overstated its corporate tax rates" and is already enjoying a significant competitive advantage over those who pay their fair share.
The world's largest pharmaceutical company, which manufactures Viagra among other drugs, has cited high U.S. corporate tax rates as an argument in favor of a merger with Irish corporation Allergan. The business deal would likely take the form of what's known as a "corporate inversion," allowing Pfizer to renounce its U.S. tax citizenship while retaining its current U.S. headquarters, management structure, and facilities.
"Despite its self-serving claims, Pfizer is not at a competitive disadvantage operating under the U.S. tax system."
—Frank Clemente, Americans for Tax Fairness
But the report from the coalition Americans for Tax Fairness—entitled Pfizer's Tax Dodging Rx: Stash Profits Offshore (pdf)—indicates that Pfizer's effective tax rate on its worldwide income was just 7.5 percent in 2014, compared with the 25.5 percent rate the company reported in its Securities and Exchange Commission (SEC) filings.
Indeed, according to Americans for Tax Fairness, which analyzed the corporation's SEC filings with the help of tax experts, "a fair reading of those filings is that the company's reported income tax rates are largely an accounting fiction."
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As the Wall Street Journal explained on Sunday: "Pfizer's accounting methods raise its reported tax rate, without increasing the actual taxes the company pays. More than two-thirds of the company’s 2014 tax expense—$2.2 billion out of $3.1 billion—was money the company will actually pay only if and when it chooses to repatriate foreign profits."
Pfizer had as much as $148 billion in profits parked offshore at the end of 2014, on which it has paid no U.S. income taxes. But given that Pfizer alone controls whether, when, and how much of its foreign earnings might actually be repatriated and therefore taxed, the chances of that tax bill being paid are slim.
"Despite its self-serving claims, Pfizer is not at a competitive disadvantage operating under the U.S. tax system," said Americans for Tax Fairness executive director Frank Clemente on Tuesday. "If anything, Pfizer is highly advantaged. An inversion would lock in these current advantages and extend them further, giving Pfizer an even bigger unwarranted tax edge against other American companies that are paying their fair share."
According to the U.S. Congress' Joint Committee on Taxation, the average American pays an income tax rate of 10.1 percent.