Merger consequences

Pfizer Deal Collapse Sparks Tax Warnings

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Allergan boss Brent Saunders, left, and Pfizer chief Ian Read have called off their merger over tax concerns.
  • Why it matters

    Why it matters

    New U.S. regulations aimed at closing corporate tax loopholes exploited by companies moving overseas could negatively impact German and other foreign investment in America.

  • Facts

    Facts

    • The U.S. Department of the Treasury on Wednesday released new regulations to restrict tax advantages of companies moving abroad purely on paper to avoid taxes.
    • Trade group Organization for International Investment warned the rule changes may impact foreign investment into the United States.
    • The United States has one of the highest corporate tax rates in the world at 35 percent in 2015 – compared to 12.5 percent in Ireland.
  • Audio

    Audio

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It was a bitter pill for pharmaceutical firms Pfizer and Allergan – and one that many companies, including German ones, may soon also be forced to swallow.

The $160 billion (€140 billion) merger between the two companies was effectively killed off this week by the U.S. government’s crackdown on mergers involving U.S. companies that relocate their headquarters – at least on paper – to lower-tax locations of smaller overseas partners.

Following the U.S. Department of the Treasury’s release on Monday of new restrictions on so-called tax inversions, New York-based Pfizer and Ireland’s Allergan on Wednesday abandoned their proposed deal, citing the “adverse tax law change.”

Ireland’s corporate income tax rate of 12.5 percent – about one third the rate at which U.S.-based companies are taxed – was the magnet for a merger. It would have saved Pfizer an estimated $1 billion in annual taxes.

But such mergers had increasingly become a magnet for criticism.

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