Pfizer-Allergan deal is a ‘travesty’ - Icahn

Activist investor Carl Icahn argues that deal will open the floodgates for other companies to leave the US

Protesters outside Pfizer headquarters in New York. But activist shareholder Carl Icahn says that the fault does not lie companies like Pfizer but with the US’ uncompetitive international tax code and with Congress for not changing it. (Photograph: ANDREW GOMBERT/EPA)

Protesters outside Pfizer headquarters in New York. But activist shareholder Carl Icahn says that the fault does not lie companies like Pfizer but with the US’ uncompetitive international tax code and with Congress for not changing it. (Photograph: ANDREW GOMBERT/EPA)


The Pfizer-Allergan deal is a travesty. Pfizer, which is based in New York, will move overseas by merging with Allergan, based in Ireland, in a maneuver known as a corporate inversion. The point isn’t to find corporate synergy. It is to leave behind our uncompetitive international tax system.

Not only is this the largest inversion in history, but it will also open the floodgates for other companies to leave the United States, further eroding our tax base, damaging our economy and costing many thousands of jobs.

This is not just me speculating. I have spoken to many chief executives who confirm they are planning to follow Pfizer’s lead. But while this inversion has set off a firestorm of public statements by our leading presidential candidates and other politicians, Congress continues to do nothing.

Recently, Hillary Clinton came out against this mechanism and proposed slowing the pace of future inversions by tightening regulation and imposing an exit tax on companies leaving. While I applaud her for speaking out publicly, her proposal is flawed because it fails to fix the underlying problem: Our international tax code is disadvantageous to companies based in the United States, as most countries now employ a territorial tax system, which allows companies to pay taxes only where the money is earned. More important, we can’t afford to wait more than a year for the election of a new president to take action, as we will lose many more companies in the interim.

Fortunately, there is a very simple and immediately available solution. Senators Chuck Schumer of New York and Rob Portman of Ohio have created a bipartisan framework for international tax reform that is supported by House Speaker Paul D. Ryan and Kevin Brady, the chairman of the Ways and Means Committee. Currently, we tax a company’s foreign earnings at 35 percent when the money is repatriated to the United States. And even though the tax code allows for a deduction based on the tax paid to the country in which it was earned, the overall tax is still much higher than it would be in most other countries. We are one of the few countries in the world that asks our companies to pay a double tax on foreign earnings.

Our uncompetitive tax code is why companies have chosen not to bring their foreign earnings back to the United States, stranding an estimated $2.6 trillion abroad. It’s also exactly why companies ultimately seek corporate inversions.

The Schumer-Portman framework fixes this problem by allowing companies to repatriate all that stranded cash at a reduced rate of between 8 and 10 percent (or lower, depending on the foreign tax deduction). This tax on repatriated earnings would yield the United States huge incremental revenue — an estimated $200 billion on the $2.6 trillion now kept overseas — and would allow companies to reinvest the nontaxed portion in the United States, creating thousands of jobs. The Schumer-Portman framework also includes provisions that would stop “earnings stripping,” a method a company uses, once it leaves the country, to reduce the tax it pays on its remaining United States-based subsidiary (Mrs. Clinton’s proposal also addressed earnings stripping).

Congressional leaders agree that passing legislation according to this framework would stop inversions, so why is Congress still not acting on it? The problem is that too many politicians (and members of the press) don’t understand that there is a significant difference between “international tax reform” and “comprehensive tax reform.”

“Comprehensive tax reform” means fixing both the domestic tax code and the international tax code at the same time. But this is the quintessential fool’s errand because there is simply no consensus in Washington on how to fix the domestic piece of that puzzle. On the other hand, the Schumer-Portman framework for “international tax reform” has a bipartisan consensus now and would stop inversions by permanently fixing this country’s antiquated double tax on foreign earnings. Without this reform, this incremental tax revenue is money this country will never receive, as most of these companies will choose to leave it abroad, or more devastating, leave the country through an inversion.

In an interview only one month ago, Ian Read, the chief executive of Pfizer, suggested his company’s inversion could have been prevented if Congress had simply done something to fix the issue. “The problem is our tax code is hugely disadvantageous to American high-tech multinational companies. I personally have been to Washington for the last two years,” he said, adding, “I have tried to get this as an urgent issue that we need to fix, and I have been totally unsuccessful.” After reading this statement and others he has made publicly, I believe that even though Pfizer would have to pay a breakup fee if it withdraws support for the merger, he and the Pfizer board would choose to do so if Congress were to pass this reform in the near term.

During the last two months, in addition to Mr. Read, I have spoken to many chief executives of large multinational companies based in the United States with significant earnings abroad. They all feel the same way as Mr. Read, and some are planning to follow Pfizer and leave the country. They are completely justified. Chief executives have a fiduciary duty to enhance value for their shareholders. The fault does not lie with them but with our uncompetitive international tax code and with our dysfunctional Congress for not changing it.

How will representatives and senators, with an election year approaching, explain to their constituents why they are out of work because their employers left the country, when it could so easily have been avoided? As the old saying goes, “there ought to be a law.

Carl C. Icahn is the chairman of Icahn Enterprises

The New York Times