Pfizer-Allergan Rs 9.91 lakh crore deal talks advance – American pharmaceutical company Pfizer is nearing a deal to buy Allergan, a rival drug maker that has its headquarters in Ireland, for as much as $150 billion (Rs 9.91 lakh crore), potentially helping the company move its corporate citizenship overseas and reduce its tax bill.
Though, negotiations have made progress in recent days, an agreement is not imminent and its timing remains unclear following the U.S. Treasury’s revelation that it would seek to tighten the rules on inversions.
Usually, inversions involve a U.S. multinational buying a smaller foreign competitor and relocating to its home country, if only on paper, to escape US taxation. Ireland is a common destination. Management generally stays in the US.
Pfizer was not named in the Treasury letter, which was signed by Treasury Secretary Jack Lew and addressed to 4 senior lawmakers: US Senators Orrin Hatch and Ron Wyden, and Representatives Sander Levin ad Kevin Brady. All 4 serve on the Senate and House tax committees.
The inversions peaked in September 2014, therefore Treasury took several regulatory actions to reduce the tax benefits of inverting, while also making new deals more difficult, which slowed deal flow but did not stop it completely.
Tax experts have hypothesized that Treasury may tighten the rules on two strategies related to inversions, tax experts said: so-called “earnings stripping” and “skinny down” distributions.
Tax experts said earnings-stripping rules combat shifting of US profits out of the country to low-tax jurisdictions. Treasury has struggled to write new rules on this under current law.
Skinny-down rules are meant to keep US firms from shrinking their operations ahead of inversions to dodge standards for minimum levels of foreign ownership in inverted companies.