The headlines covering Pfizer and Allergan’s $160 billion merger deal evolved quickly on Monday: In the morning, they relayed an image of a blockbuster merger that will produce the world’s biggest pharmaceutical company. By the afternoon, the story was a grim picture of a U.S. corporation dodging taxes by seeking refuge on Irish shores.
In a press release announcing the merger on Monday, Brent Saunders, the CEO of Allergan, called the merger “highly strategic.” Pfizer is taxed at around 26 percent in the U.S., while Ireland has the second lowest corporate income-tax rate (behind Switzerland). So, in the financial highlights of the deal, Pfizer noted that the merger will save $2 billion over the first three years—partly due to a lower corporate tax rate of 17 to 18 percent when the company moves its headquarters to Dublin, where Allergan is based.
The math is easy, but the ethics are blurry. This process, called a “corporate inversion,” is when a U.S. company merges with a foreign one to become foreign-owned on paper while its operations and business remain in the U.S. While the companies that participate in inversions often claim it makes their business logistics more efficient, inversions have a curiously consistent habit of reducing companies’ tax bills.