Ireland's exchequer is in line for an annual boost of up to €620 million following the announcement that Pfizer is buying rival Allergan in a $160 billion (€151 billion) deal.
The takeover will see Pfizer move its corporate headquarters to Dublin, sharply cutting its tax bill in the United States but bringing additional corporation tax revenue into the Irish exchequer.
The precise benefit will depend on how much international revenue is channelled through the merged Irish business. Pfizer may choose to pay tax locally in countries with even lower tax rates.
Last year, Pfizer paid an effective tax rate of 26.5 per cent as a US company. Post-merger, it expects to pay between 17 and 18 per cent across the group. In Ireland, it will pay our 12.5 per cent tax rate on any international income routed through the new Dublin operation.
Pfizer reported international revenue last year of $28.5 billion and a group profit margin of 18.4 per cent. On that basis, its international profits were about $5.3 billion, translating to a tax bill of €620 million at the Irish corporation tax rate at the current euro/dollar exchange rate if it was all taxed here.
For context, the Government collected €4.6 billion in corporation tax last year.
Moves by the OECD to address where international businesses pay corporate tax – the Base Erosion and Profit Shifting initiative – could have an impact on such revenues in future years.
The Pfizer/Allergan deal – known as a corporate inversion – has drawn sharp criticism in the US.
Democratic presidential candidate Hilary Clinton last night accused Pfizer of using legal loopholes to avoid paying its “fair share” of US income taxes. “We cannot delay in cracking down on inversions that erode our tax base,” the former US secretary of state said in a statement.
Her chief rival for the Democratic nomination Senator Bernie Sanders said in a statement that the deal “would allow another major American corporation to hide its profits overseas”.
However, the inability of US Congress to find agreement on legislative reform means Pfizer is free to acquire Allergan in a reverse takeover as long as the Dublin-based target holds more than 40 per cent of the combined company.
Under the terms announced on Monday, Allergan shareholders will own 44 per cent.