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.