How badly does Pfizer need a tax inversion? Depends how you parse the numbers

Pfizer CEO Ian Read

How big is Pfizer's "tremendous disadvantage" from its U.S. tax rate? Bigger when you report your foreign earnings the way the pharma giant does.

Pfizer told shareholders it had a 25.5% global tax rate in 2014, but had it reported its foreign earnings the way most U.S. companies do, that figure could have dropped to 7.5%, The Wall Street Journal reports. $2.2 billion of Pfizer's $3.1 billion tax expense that year was money the drugmaker will actually pay only if and when it chooses to move foreign profits back home.

"It gives a distorted picture of how much tax they're paying," Marty Sullivan, chief economist at Tax Analysts, told the newspaper. "Their tax situation is one of the most advantageous of any major U.S. corporation."

That's certainly not the picture Pfizer CEO Ian Read's been painting. For more than a year, the company has been insisting it needs a competitive tax rate to keep up with its peers, and Read himself has made multiple trips to Washington, DC, to advocate for tax reform, Reuters reports.

"I've talked to him a number of times," Rob Portman (R-OH) told the news service of Read. "I sympathize with his policy analysis. I agree with him that it's stupid for us to put our companies in this situation ... and for us to--you know, blame the companies rather than blaming ourselves--is a copout," Portman told Reuters.

Now, of course, Pfizer is taking matters into its own hands. After striking out last year on a buyout of the U.K.'s AstraZeneca ($AZN), the company is currently in friendly deal talks with Allergan ($AGN), based in tax-advantaged Ireland. And some reports say the two could have an inversion pact signed by Thanksgiving.

Whether Pfizer really needs the tax break, though, the deal would further the drugmaker's aims. The company has long floated the idea of a large-scale break-up, and it's been looking to bolster each of its individual operating units while it contemplates the prospect. After nabbing Hospira earlier this year to bolster its established products segment, it's the innovative products area that needs some beefing up--and Allergan, with a stable of branded meds starring Botox, could get it there quickly.

Should the pair come to an agreement, "this would be the creation of two companies really, not one huge $350 billion Pfizer," Andy Summers, co-portfolio manager at Janus Capital Group, told Reuters last week.

- read the WSJ story (sub. req.)
- get more from Reuters here and here

Special Reports: The top 15 pharma companies by 2014 revenue - Pfizer | Pharma's top 10 M&A deals of 2014 - Actavis/Allergan - Actavis/Forest Laboratories | The 25 most influential people in biopharma in 2015 - Brent Saunders - Actavis

Suggested Articles

Turns out Procter & Gamble didn’t want Pfizer’s consumer health unit after all. But it did want Merck KGaA’s.

Private equity firm, in exclusive talks with Sanofi, says it'll invest to pump up Zentiva into an "independent European generics leader."

With suitor Takeda circling Shire, the Dublin-based target has pulled off a deal of its own.