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Treasury Is Wrong About Our Merger and Growth
The broken U.S. tax system puts American companies like Pfizer at a competitive disadvantage.
In the pharmaceutical industry we develop medicines and therapies to address world-wide health challenges. The work is complex and deeply gratifying. At Pfizer we employ more than 30,000 highly skilled people in the United States alone and invest almost $8 billion annually in R&D, much of it in the U.S.
Surely we benefit from world-class academic institutions, a highly skilled labor force and other attractions of doing business in the U.S. But the key point is so do our foreign competitors. And they pay significantly less for the privilege. So we compete in a global marketplace at a real disadvantage. The U.S. tax code has among the highest rates in the Western world and forces its multinationals to pay U.S. tax on income earned abroad if they want to bring it back to this country.
The real-world consequences are significant. In Cambridge, Mass., where Pfizer has a state-of-the-art research lab, we are surrounded by foreign-owned competitors’ facilities. When those companies invest in their facilities, it is often as much as 25%-30% cheaper than every dollar we put into research and jobs. Why? Because our competitors don’t have to pay the penalty imposed on U.S. corporations bringing earnings back to America. We can invest less—because of a broken tax system.
Pfizer has long worked with Congress to make the U.S. tax system more competitive and fair. In the absence of tax reform, we undertook a proposed merger with Allergan PLC in good faith and after intense study and review of current laws. This strategic transaction, driven by strong commercial and industrial logic, would have made it easier to invest in the U.S.
On Monday the U.S. Treasury announced a third set of new rules governing corporate re-domicilings, or so-called inversions. It surprised many because Treasury Secretary Jack Lew said in 2014 that “we do not believe we have the authority to address this inversion question through administrative action. If we did, we would be doing more. That’s why legislation is needed.”
This week’s Treasury action interprets the tax laws in ways never done before. This ad hoc and arbitrary attempt to single out and damage the growth opportunities of companies operating within the current law is unprecedented, unproductive and harmful to the U.S. economy.
The action was accompanied by much unfortunate rhetoric about tax avoidance. No one was shirking their U.S. tax bills. In a merger with Allergan PLC, an Irish company, we would have continued to pay all federal, state and local taxes on our U.S. income. All that these new rules will do is create a permanent competitive advantage for foreign acquirers. Simply put, there will be more foreign acquisitions of U.S. companies resulting in fewer jobs for American workers.
What fails to get noted is our steadfast commitment to science and good corporate citizenship. More than half of Pfizer’s 1,000-plus R&D collaborations take place in the U.S., where our partners include academic hospitals, government organizations, nonprofits, foundations, patient advocacy groups and other pharma companies.
Companies like Pfizer and Allergan contribute to the communities in which we operate. To be pilloried as “deserters” when we are trying to stay competitive on a global stage so that we can continue to invest in the U.S. is wrongheaded. Government policy should encourage investment certainty and job creation. Combining these two businesses would have had a positive impact on the lives and livelihoods of many people.
While the Treasury’s proposal is a shot at Pfizer and Allergan, this unilateral action will hurt other companies as well. If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete? The new “rules” show that there are no set rules. Political dogma is the only rule.
Pfizer will continue to make medicines that significantly improve lives. We are proud of our heritage, our commitment to patients and we will continue to drive for cures.
Mr. Read is chairman and chief executive officer of Pfizer Inc.
View the WSJ piece