What You Need to Know About the Pfizer/Allergan Deal and Tax Inversions

November 24, 2015

What do you get when you combine Viagra and Botox? Pfizer and Allergan hope that the answer is a lower tax rate.

In a huge merger, pharmaceutical companies Pfizer and Allergan are making the news this week. However, not everybody is happy with the outcome. When this much money is involved, it will always draw a few eyes. But this deal might just highlight huge problems in our corporate tax structure as a whole.

So what exactly do you need to know about this merger and what it means for the country?

The $160 Billion Dollar Merger

Pfizer Inc. and Allergan Plc will likely be combining, in a huge deal nearing $160 billion. The new company will be called Pfizer Plc. Currently, Allergan is estimated to have a market capitalization rate of $122 billion, with the larger Pfizer having a market capitalization rate of $200 billion.

The deal allows Allergan (the Botox manufacturer) to buy Pfizer (the Viagra and Lipitor manufacturer) even though Allergan is a much smaller company.  The current Pfizer Chief Executive Officer, Ian Read, will remain the chairman and CEO of the new company. Allergan president and CEO, Brent Saunders, will remain on as the president and Chief Operating Officer. The 11 member Pfizer board will combine with the four member Allergan board.

Before the deal is finished, the shareholders of both companies will have to vote, and the merger is expected to close mid- to late-2016.

This maneuver has also brought with it a lot of controversy. Why?

Once again, the answer has to do with taxes.

Record Breaking Deal

Let’s put aside the controversy for a second, and talk about some facts about this merger because this wasn’t just your average business deal. This one set a lot of records.

  1. Allergan’s acquisition of Pfizer is the biggest one this year.
  2. More to the point, it is the biggest pharmaceutical acquisition ever, beating out Pfizer’s own acquisition of Warner-Lambert back in 2000 for $116 billion.
  3. Pfizer Plc will now be the biggest pharmaceutical company by annual sales, where it is expected that they will make around $60 billion every year. (This is assuming they don’t have any divestitures.)
  4. Assuming it is allowed to receive the lower tax rate, it will be the biggest move in history to use a controversial process called inversion.

The Tax Controversy

So now back to the controversy. Notice above that I pointed out that Allergan is technically buying Pfizer, at least reportedly. Yet, Allergan is the smaller company by a lot. So why would they buy Pfizer instead of the opposite being true?

You guessed it: taxes.

You see, Allergan is headquartered in Ireland, where as Pfizer is headquartered in the United States. Under the new company, Allergan’s Irish parent company will still be in charge, even though the operational headquarters will be in New York. This means that for tax purposes, the company would be Irish. Which means they will be paying a lot less taxes than they would if they were still headquartered in the USA. In fact, they estimate that after their first year in business, they would have an effective tax rate of around 17 or 18 percent. Currently, Pfizer’s tax rate is reported at 25 percent.

Let’s make up some numbers to see just what this means.

  • Let’s pretend that Pfizer makes $1 billion taxable dollars a year (which is a ridiculously low number, but one that is easier to do math with.)
  • Under their current tax rate, they would expect to pay about $250 million.
  • Under the new, expected rate, they expect to pay around $170 or $180 million dollars.
  • That is a difference of around $70 million dollars.
  • And remember, their real revenue is about 60x what I said above. That means they are really saving (or the US Treasury is losing depending on how you want to look at it) around $4 billion.

So from that point of view, having Allergan be the purchaser is just good business sense. Not everyone believes it should be legal, however.

What Is Inversion?

All of this happened through something called corporate inversion.

A corporate inversion happens when a company reincorporates overseas in order to receive lower tax burden on money made abroad. There were several ways to take advantage of corporate inversion, but in 2004, Congress passed a low restricting how this can be done. However, having a foreign company purchase the American company, even if the foreign company is much smaller, is still a legal way to accomplish this.

Now, just to clarify, this only helps on foreign profits. As a US company, revenue created outside of the country is still taxed within the US, and it can often end up being more expensive overall – this is because the US has the highest tax rates for businesses in the world – at around 35 percent – and is one of the only countries to tax profits wherever they are earned. Thus, by being incorporated abroad, your rates on foreign revenue will decrease.

Technically, this process is legal as long as the companies are being open and honest on their tax forms. However, a big concern is that it is easy to hide or reorganize profits to avoid paying taxes on other income.

For example, look at something called hopscotching. Hopscotching occurs when companies keep money overseas, sending it – or hopscotching it – from country to country, in order to avoid paying US taxes on it.

How does it work? Well, instead of sending money to the US Corporation, income is first funneled through the foreign parent company. The money is then invested in the US, thus avoiding the need to pay taxes on it. It is estimated that roughly $2 trillion is being hopscotched.

What Politicians and Other Government Bodies Think of Corporate Inversion

Over the last several years, many politicians have stated their opinions on this controversial process. And while the White House did not comment specifically on this deal, when asked for a comment, it did reiterate its stance that Congress needs to take legislative action against these techniques.

  • Hillary Clinton. In the wake of the Pfizer/Allergan deal, Clinton came out and said that, if elected, she would propose measures that would make these deals illegal.
  • Barack Obama. The President himself has said that these deals are unpatriotic. He also claims that if you benefit from being an American corporation, you should not try to game the system. As far as policy goes, though, he has been unsuccessful in his efforts to curtail these deals. However, just four days before the merger was announced, he set out to step up his attack on these deals.
  • Bernie Sanders. Sanders has asked the President to put a stop to the deal because of his belief that it will allow yet another American company to hide its profits oversea. Taking it even farther, he has restated his belief that the entire tax structure needs to be evaluated.
  • U. Treasury. The Treasury has tried to limit the benefits of these deals, in order to avoid losing billions in tax revenue, but admits that without legislation from Congress, it is an uphill battle. However, while the Pfizer/Allergan deal will likely avoid these restrictions, the Treasury has made some efforts to change the law regarding corporate inversions. For example, AbbieVie Inc.’s proposed inversion, for around $52 billion, was derailed by these regulations.

Of course, looking at the names above, it is pretty easy to pinpoint which side of the divide this issue lies on. However, what exactly is the problem?

Those against corporate inversions are worried about the seeming ease that companies can go to avoid paying taxes in the US. By foregoing these taxes, the country can potentially lose billions of dollars.

On the Republican side of the debate, many Republicans do believe this process needs to be overhauled, but as part of the overall reform of the tax system, which they would want to have in order to lower that high 35 percent tax rate, as opposed to laws directly addressing corporate inversions.

Successful Inversions

Despite the raised eyebrows around corporate inversions, there have been plenty of success stories involving this process. In fact, around 50 US companies have inverted over the last ten years alone (which, as you might recall, has been since Congress passed tighter regulations on corporate inversion laws), with more considering it.

It should be noted, though, that while there have been many such deals, White House spokesman Josh Earnest told reporters that prior administrative actions designed to discourage tax inversions has slowed down the pace of these deals.

So which companies exactly have taken advantage of the inversion process? Here are some of the bigger deals that have taken place over the last decade:

  • In 2010, Global Indemnity reorganized into an Irish company, bringing with it its $319 billion revenue.
  • In 2012, power management company Eaton/Cooper took its $22 billion revenue to Ireland.
  • In 2013, the cable company Liberty Global Plc moved to the United Kingdom with its $17.3 billion.
  • In 2014, another pharmaceutical company, Medtronic, took its $16.5 billion to Ireland.
  • In 2011, TE Connectivity, an industrial manufacturer with a revenue of $13.3, reorganized to become a Swiss company.

The Final Takeaway

What happens to corporate inversions in the future is yet to be seen. However, what is clear is that right now, despite the controversy, it is legal. And that means that Pfizer Plc will probably be an Irish company soon.

What do you think? Is it time to make corporate inversions illegal, or at least more regulated? Or should businesses have the freedom to incorporate in the country that they chose?


Ashley Shaw is an experienced Legal Writer with years of experience. After receiving her JD, she worked for years in a corporate environment writing on business and employment law topics

Get Business Legal Updates

Please provide your full name.
Please provide a valid email address.
We respect your privacy, and we will never share your information. Unsubscribe at any time.

Related Publications

In California, small clinics and physician-owned practices are being consolidated into larger healthcare systems. Because this creates a monopoly on healthcare in a given area, prices soar. CA’s attorney general wants the power to halt these mergers in their tracks. https://www.latimes.com/business/story/2020-06-01/california-seeks-more-power-to-fight-healthcare-mergers

June 5, 2020
Legally Sound Smart Business cover art

Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
Apple Podcast badge
Google Podcast badge
Spotify Podcast badge

Latest Episodes

November 21, 2023

In this episode, Nasir Pasha and Matt Staub explore the legal implications of Artificial Intelligence in the business world. They delve into the most talked-about issue of 2023: AI and its impact on the legal landscape. Although AI isn’t necessarily a new topic, it has many unanswered questions in the legal world. Nasir and Matt…

July 12, 2023

In this episode, Attorney Nasir Pasha and Attorney Matt Staub delve deep into the complexities of mass layoffs and offer valuable insights, real-life examples, and practical advice to employers grappling with the aftermath of such challenging situations. Nasir and Matt emphasize the critical importance of effective communication when executing mass layoffs. They stress the need…

January 9, 2023

As the COVID-19 pandemic swept across the globe, businesses scrambled to adapt to the new reality it presented. In this blog post, we dive into the case of Goldman Sachs, a financial services giant, to examine their response to the crisis and the lessons other businesses can learn from their return-to-office strategy. From prioritizing employee…

October 28, 2022

Full Podcast Transcript NASIR: Finally, my two favorite worlds have collided – both the law and the chess – right here at Memorial Park in Houston, Texas. Windy day. We have some background noise – ambient noise. What are the two worlds that collided? Well, Hans Neimann has sued Magnus Carlsen for defamation in one…

September 26, 2022

Through a five-round championship bout, Matt travels to Texas from California to determine which state is better for business. Will it be a knockout with a clear winner or will it go to the scorecards?

July 7, 2022

Whether you are buying or selling a business, the transaction goes through the same steps. However, they are viewed from different perspectives. Sellers may not want to fully disclose all the blind spots while Buyers will want otherwise. Nasir and Matt battle it out in this Buyer vs. Seller to determine who has the advantage!…

May 12, 2022

When it comes to Restrictive Covenants, employers are fighting to keep their company safe while employees may use them to their advantage. Keep listening to find out if the Employer or the Employee wins this battle. Round 1: Trade Secrets A company’s trade secrets encompass a whole range of information and are one of the…

February 14, 2022

The Supreme Court rejected the nation’s vaccine mandate. Businesses with 100 or more employees are NOT required to have their employees vaccinated or go through weekly testings. However, this policy remains in effect for health care facilities. In this episode of Legally Sound | Smart Business, the team sat down to discuss their thoughts on this ruling.

December 1, 2021

In this episode of Legally Sound | Smart Business by Pasha Law PC, Nasir and Matt cover the Business of Healthcare. There is more to the healthcare industry than just doctors and nurses. Many Americans have health insurance to cover their yearly needs, but most Americans are not aware of what really goes on behind…

October 12, 2021

In our latest episode, Nasir and Matt are covering the legal issues on Social Media. The average person spends most of their day on social media, whether they are scrolling for hours or publishing their own content. However, just because you publish your own content on Instagram does not equate to you owning that image….

September 28, 2021

What is a Non-Disclosure Agreement, and when do I need one? In this episode, Nasir and Matt shares why you need to use Non-Disclosure Agreements, basic facts about NDA’s, and discuss about the infamous Jenner-Woods story. Having the right Non-Disclosure Agreement in place not only protects you and your business, but it also makes the…

June 16, 2021

Covered in this episode of Legally Sound Smart Business are some typical business mistakes blunders small businesses often make and how to avoid them. Blunder #1: Copying and pasting agreements It may sound like a good idea at the time, but this blunder comes with hidden pitfalls. Having an attorney draft terms that are specific…

February 4, 2021

How you terminate an employee can make the difference between a graceful transition to avoidable negative outcomes like a dramatic exit or even a lawsuit. We gathered a panel of experts and asked them – is there a “right way” to fire an employee? We would like to thank our guests for this episode: Amr…

December 2, 2020

The COVID-19 pandemic has turned nearly every aspect of life on its head, and that certainly holds true for the business world. In this episode, Matt and Nasir explain how the early days of the pandemic felt like the Wild West and how the shifting legal playing field left a lot open to interpretation and…

November 16, 2020

After plenty of ups and downs, our buyer has finally closed on the purchase of their business. While we’re marking this down in the ‘wins’ column, it never hurts to review the game tape. In this final episode, our hosts, Matt Staub and Nasir Pasha, return to the deal almost a year later to reflect…

September 15, 2020

The ink is drying on the signature line and things are looking great for our buyer. After so much hard work, the finish line is in sight and the cheering within ear shot.   Though the landlord is still serving friction, things seem safe to move forward and for now, our buyer will be keeping…

July 31, 2020

Though things are coming along well, the journey would not be interesting if it was purely smooth sailing. After our buyer opens escrow, they are forced to push the closing date back when suddenly a letter from an attorney was received claiming the business, we are buying has a trade mark on the name!  Now…

June 12, 2020

With frustration at an all-time high and professionalism at an all-time low, our friend the Buyer has “had it” with the Seller and quite frankly their lack of knowledge. At present our Buyer is rightfully concerned that the latest misstep from our loose-lipped Seller will threaten not only the entire operation of the businesses but…

May 11, 2020

As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of…

April 4, 2020

One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment…

April 4, 2020

Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It’s a perfect outlook with a perfect setup for the ups and downs yet to come. Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the…

April 4, 2020

When a savvy buyer hears opportunity knocking to purchase a prime positioned business, she decides not to go it alone and taps in the professionals to help navigate what could potentially be a fruitful acquisition. “Behind the Buy” is a truly rare and exclusive peak into the actual process, dangers, pitfalls and achievements, that can…

August 7, 2019

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

May 28, 2019

In this podcast episode, Matt and Nasir breakdown the legal issues of the subscription industry’s business on the internet. Resources A good 50-state survey for data breach notifications as of July 2018. California Auto-Renewal Law (July 2018) Privacy Policies Law by State Why Users of Ashley Madison May Not Sue for Data Breach [e210] Ultimate…

March 12, 2019

In recording this episode’s topic on the business buying process, Matt’s metaphor, in comparing the process to getting married probably went too far, but they do resemble one another. Listen to the episode for legal advice on buying a business.

December 3, 2018

Nasir and Matt return to discuss the different options available to companies looking to raise funds through general solicitation and crowdfunding. They discuss the rules associated with the various offerings under SEC regulations and state laws, as well as more informal arrangements. The two also discuss the intriguing story about a couple who raised over…

July 24, 2018

Flight Sim Labs, a software add-on creator for flight simulators, stepped into a PR disaster and possibly some substantial legal issues when it allegedly included a Trojan horse of sorts as malware to combat pirating of its $100 Airbus A320 software. The hidden test.exe file triggered anti-virus software for good reason as it was actually…

April 17, 2018

Attorneys Matt Staub and Nasir Pasha examine Mark Zuckerberg’s congressional hearings about the state of Facebook. The two also discuss Cambridge Analytica and the series of events that led to the congressional hearings, the former and current versions of Facebook’s Terms of Service, and how businesses should be handling data privacy. Full Podcast Transcript NASIR:…

March 10, 2018

The Trump presidency has led to a major increase in ICE immigration enforcement. It’s critical for business owners to both comply with and know their rights when it comes to an ICE audit or raid. Nasir, Matt, and Pasha Law attorney Karen McConville discuss how businesses can prepare for potential ICE action and how to…

February 5, 2018

New years always bring new laws. Effective January 1, 2018, California has made general contractors jointly liable for the unpaid wages, fringe benefits, and other benefit payments of a subcontractor. Nasir and Matt discuss who the new law applies to and how this affects all tiers in the general contractor-subcontractor relationship. Click here to learn…

January 2, 2018

With a seemingly endless amount of new mattress options becoming available, it is unsurprising that the market has become increasingly aggressive. As companies invest in more innovative solutions to get in front of customers, review sites, blogs and YouTube videos have moved to the forefront of how customers are deciding on their mattresses and how…

December 7, 2017

In recent months explosive amounts of high profile allegations of sexual harassment, assault, and varying acts of inappropriate behavior have transcended every sector of our professional world. With a deluge from Hollywood and politics, and the private workforce, accusations have inundated our feeds and mass media. This harassment watershed has not only been felt within…

November 16, 2017

If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program…

October 10, 2017

Government requests come in multiple forms. They can come in as requests for client information or even in the form of investigating your company or your employees. Requests for Client Information General Rule to Follow Without understanding the nuances of criminal and constitutional law and having to cite Supreme Court cases, any government requests for…

August 24, 2017

Nasir and Matt suit up to talk about everything pertaining to employee dress codes. They discuss the Federal laws that govern many rules for employers, as well as state specific nuances in California and other states. The two also emphasize the difficulty in identifyingreligious expression in dress and appearance, how gender-related dress codes have evolved…

June 28, 2017

Nasir and Matt discuss the life cycle of a negative online review. They talk about how businesses should properly respond, how to determine if the review is defamatory, the options available to seek removal of the review, how to identify anonymous reviewers, whether businesses can require clients to agree not to write negative reviews, and…

June 7, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Mattbreak down social media marketing withguests Tyler Sickmeyer and Kyle Weberof Fidelitas Development. They first discuss contests and promotionsand talk about where social media promotions can go wrong,when businesses are actually running an illegal lottery, and the importance of a soundterms and conditions. Next, they…

April 3, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Matt go in depth with the subscription box business. They discuss where subscription box companies have gone wrong(4:30), the importance of a specifically tailored terms and conditions(6:30), how to structure return policies (11:45), product liability concerns (14:45),the offensive and defensive side of intellectual property (19:00),…

February 1, 2017

Nasir and Matt discuss the suit against Apple that resultedfrom a car crashed caused by the use of FaceTime while driving. They also discuss howforeseeable use of apps can increase liability for companies. Full Podcast Transcript NASIR: Hi and welcome to Legally Sound Smart Business! I’m Nasir Pasha. MATT: And I’m Matt Staub. Two attorneys…

January 5, 2017

The guys kick in the new year by first discussing Cinnabon’s portrayal of Carrie Fisher as Princess Leia soon after her death, as well as other gaffes involving Prince and David Bowie. They alsotalk about right of publicity claims companies could be held liable for based on using someone’s name or likeness for commercial gain.

December 22, 2016

Nasir and Matt discuss the recent incidentat a Victoria’s Secret store where the store manager kicked out all black women after one black woman was caught shoplifting. They then each present dueling steps businesses should take when employees are accused of harassment.

December 8, 2016

Nasir and Matt return to talk about the different types of clients that may have outstanding invoices and how businesses can convert unpaid bills to getting paid.

November 10, 2016

After a long break, Nasir and Matt are back to discuss a Milwaukee frozen custard stand that is now revising it’s English only policy for employees. The guys also discuss how similar policies could be grounds for discrimination and what employers can do to revise their policies.

October 6, 2016

The guys discuss the new California law that allows actors to request the removal of their date of birth and birthdays on their IMDB page and why they think the law won’t last. They also discuss how age discrimination claims arise for business owner.

September 29, 2016

Nasir and Matt discuss the racial discrimination claims surroundingAirbnb and how it’s handled the situation. They also discuss some practical tips for businesses experiencing similar issues.

September 8, 2016

Nasir and Matt discuss whyAmazon seller accounts are getting suspended and banned without notice and how business owners can rectify this situation through a Corrective Action Plan.

August 25, 2016

Nasir and Matt talk about the accusations surroundingfashion giant Zararipping off the designs of independent artists like Tuesday Bassen and howsmaller companies can battle the industry giants.

August 18, 2016

Nasir and Matt discuss Brave Software’s ad replacing technology that has caught the eye of almost every national newspaper and has a potential copyright infringement claim looming. They also welcome digital marketing expert Matt Michaelree to speak on the specifics of what Brave is attempting to do and whether it has the answers moving forward.

July 28, 2016

Nasir and Matt discuss the sexual harassment lawsuit filed by Gretchen Carlson against Fox CEO Roger Ailes. They also talk aboutthe importance of sexual harassment training and properly handling such allegations in the office.

July 15, 2016

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

We represent businesses.
That’s all we do.

Oh, and we love it.

We love our work. We love reviewing that lease for your new location. We thrive on closing that acquisition that nearly fell through. We’re fulfilled when we structure a business to grow, raise capital, and be legally protected.

We focus on developing close relationships with our clients by being like business partners. A partner who provides essential, personalized, proactive legal support.

We do all of this without utilizing the traditional billable hour model. You pay for the value we bring, not the time spent on calls, emails, and meetings.

Our team is made up of attorneys and staff that share these values and we are retained by clients who want the same.

Pasha Law PC operates in the states of California, Illinois, New York, and Texas.

Meet Our Team

Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

Learn More