Hillary Clinton Proposes ‘Exit Tax’ In Wake Of Pfizer, Allergan Merger

Presidential candidate Hillary Clinton is scheduled to announce a proposal today for an ‘exit tax’ aimed at discouraging US companies from committing tax inversion. Corporate tax inversion allows companies to merge with corporations in countries with a lower tax rate, effectively saving millions in taxes for companies that successfully execute the move.

The exit tax would be a small part of Clinton’s larger proposed efforts to ‘rein-in Wall Street’ by targeting the estimated $2 trillion in profits held by US-based companies abroad in an effort to avoid having the money taxed. The announcement followed the news from November that US-based Pfizer and Ireland-based Allergan planned to merge in order to create the world’s largest pharmaceutical company.

The proposed deal sparked political debate over whether the deal should be allowed to proceed. Pfizer plans to relocate their headquarters from New York to Dublin – Allergan’s home city – enabling the pharmaceutical giant to lower their annual tax rate from 25 percent to just 18 percent.

According to estimates, had Pfizer made the move to Ireland last year, they could have saved approximately $1 billion of the $3.1 billion they paid in US taxes in 2014. While new legislation put in place by the US Treasury Department may help make tax inversion less lucrative, insiders say that the only government body capable of stopping the deal would be Congress.

Clinton has previously commented on the $160 billion megamerger, saying she has “deep concerns” and has called for action from Congress to prevent companies from perfuming tax inversions. “They’re doing it to save money on taxes,” said Clinton. “I want the Treasury Department to do everything it can to stop that kind of behavior and call it for what it is: gaming the tax system.”

The current rules state that US-based companies can make the move abroad if they buyout a foreign company and hand over more than 20 percent of their shares to the overseas corporation. President Barack Obama and his administration have made a proposal suggesting the shares threshold be increased to over 50 percent.

The proposed exit tax would affect any companies planning an overseas move, which would impose tax rates on any foreign profits collected at the time of the deal. Currently, foreign profits are only taxed by the US government if they are brought back into the company, leading many corporations to keep their capital abroad to avoid taxation.

Sources:

• Hillary Clinton to unveil ‘exit tax’ plan to combat inversion mergers like Pfizer/Allergan – http://www.biopharmadive.com/news/hillary-clinton-to-unveil-exit-tax-plan-to-combat-inversion-mergers-like/410450/
• Hillary Clinton targets corporate inversion with new ‘exit tax’ plan – http://www.theguardian.com/us-news/2015/dec/07/hillary-clinton-exit-tax-corporate-inversions