US pharmaceutical giant Pfizer has withdrawn from its $160bn takeover of Allergan, thus drawing a close to what would have been the biggest merger in the industry’s history. The deal’s termination is being hailed as a huge win for the Obama administration in its drive to stop tax inversion through corporate mergers.
Through the purchase of Irish firm Allergan, Pfizer had planned to move its headquarters to Dublin, thereby enabling one of the world’s biggest pharmaceutical companies to reduce its corporation tax bill considerably. In fact, the merger would have been “the biggest tax ‘inversion’ ever attempted”, said Reuters.
In light of the withdrawal and in accordance with the merger contract in place between the two firms, Pfizer is obligated to make a $400m pay out to Allergan for expenses incurred.
The news shortly followed President Barack Obama’s call for global action against tax evasion amid the Panama Papers scandal that surfaced on April 3, and has already seen Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson stand down. In the unscheduled media address on April 5, Obama told members of the press that “the problem is that a lot of this stuff is legal, not illegal”, and urged Congress to take action against companies redomiciling in order to lower their tax bills.
In correlation with the US President’s speech, the US Treasury has unveiled new regulations that will make it more difficult for inversion deals to take place. According to an analyst interviewed by the Wall Street Journal, all benefits that were to be gained from inversions have now been addressed and shut down.
In light of this shift, which is more hard-hitting than expected, it would appear that Pfizer had little choice but to pull out of the deal, heralding a precedent that could soon transpire across all industries and markets.
With the global economy still recovering from the 2008 financial crisis, more stringent and encompassing regulations for corporate tax are crucial, not only in the US, but everywhere. Perhaps a new era in diligent taxation adherence has begun.