Big Pharma companies rake in billions of dollars in profits from prescription drugs. But instead of paying their fair share back into the U.S. economy through taxes, many of these companies are squeezing through legal loopholes by setting up shop on foreign soil. Sometimes this is done by merging with a smaller foreign company, and other times the overseas location is little more than a headquarters only on paper.
A prime example of this legal tax evasion is Pfizer, which recently inked a deal to acquire Allergan, which is based in Ireland. Although Allergan is smaller than Pfizer, the larger company will move “operations” for two of its other American drug companies, Actavis PLC and Forest Laboratories, under the Allergan banner, allowing them to escape paying certain U.S. taxes.
This sort of activity is business as usual for Pfizer, which, according to the Institute on Taxation and Economic Policy, has 151 subsidiaries on foreign soil. Its so-called “shell companies” are located in Luxumbourg, Holland, the Channel Islands and the Cayman Islands, and now in Ireland. The subsidiaries house Pfizer’s patents, then lease the use of the patent back to the parent company. But the profits go on the foreign subsidiary’s books, where they are subject to lower taxes, even if the lion’s share of the business is actually done on American soil.
One would think the U.S. government would make it a top priority to close these loopholes and make industry leaders like Pfizer play fair. But Congressional leaders have proven to be unwilling to make changes to the corporate tax code that would discourage the game. An ideal solution would be to adjust the tax code to collect a reasonable amount of money from these companies, and simplify the code to eliminate the labyrinth of tax breaks that encourage companies to try to game the system.
Source: USA Today
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