Influential GOP lawmaker calls for tax overhaul in wake of Pfizer-Allergan inversion deal
- Opening a hearing on tax base erosion, the Chairman of the House Ways and Means Tax Policy subcommittee, Charles Boustany (R-LA), pointed to the recent Pfizer-Allergan merger as an example of how high U.S. corporate tax rates are pushing domestic companies to relocate to more business-friendly tax jurisdictions.
- The top Democrat on the House Ways and Means subcommittee, Richard Neal (D-MA), also agreed Congress needs to stop inversions, calling for the corporate rate to be lowered in a revenue-neutral way.
- Pfizer and Allergan announced a $160 billion merger deal last month, with the combined company relocating its tax domicile to Ireland in order to take advantage of the lower corporate tax rate.
There's a major problem—the U.S. tax corporate tax rate, at 35%, is the highest in the world. This has driven a spate of inversion deals among top formerly U.S.-based companies, including Burger King, Mylan, Medtronic, and now Pfizer. Kenneth Frazier, CEO of Merck, speaking on Bloomberg Television Tuesday, argued the U.S. tax system is not globally competitive. As a result, in Frazier's view, seeking a lower tax rate through an inversion deal remains imperative for companies to compete globally. For Pfizer, relocating its tax domicile to Ireland means the company's statutory tax rate is 12.5%.
In the hearing, Representative Neal called for lowering the tax rate“in a revenue-neutral way as the Obama administration has proposed." A maelstrom of criticism has surrounded the U.S. tax code and and companies' efforts to evade it. Last year, President Obama went as far as questioning the "economic patriotism" of companies seeking to invert. Some have called for a complete overhaul of the tax code. Most likely, however, any reform will come incrementally.