Avoiding the US Corporate Tax Bite

Pfizer, the maker of drugs like Viagra and Lipitor may have found a way to escape the US corporate income tax disadvantage. 

Pfizer has proposed to buy AstraZeneca and this would allow them to merge with the British company and reincorporate in Britain.  Voila – a British company rather than a US company.  The transaction has initially been rebuffed by AstraZeneca but the point is much broader than this one transaction.

The stated reason is that the combined companies will have economies of scale.  But it would also result in the surviving company being able to access tons of cash that is overseas without paying the US tax that is due when those funds are moved to the US.

America’s top-line corporate tax rate is the highest in the developed world.  Granted in some industries and circumstances, discounts have been granted to certain favored businesses.  But for a company that pays the full tax bite, US corporate income taxes are frequently their biggest expense.

The net result is that the United States will lose jobs, and tax revenue.  What is not nearly as visible are those new companies that are being incorporated outside the United States today because they want to avoid the added tax bite in the US from the get-go.