The Pfizer-Allergan Tax Inversion

The Pfizer-Allergan Tax Inversion

This case highlights the issue of corporate tax avoidance through the tax tool of corporate inversions.While Congress has passed legislation in 2016 in an attempt to restrict corporate inversions followed by a decrease in corporate tax rates during the Trump administration, the practice of corporate inversions still continues.The Biden administration is considering an increase in the corporate tax rate.Read the HBR article: Sticks and Stones?How Companies Respond to Tax Shaming.”

The readings also continue to highlight the use of tax legislation to create economic stimulus and improve economic growth

.Questions #3:Considering the assigned readings, how does tax policy affect business innovation and economic growth?

Question #4:How was the pandemic economic stimulus legislation designed to jump start the economy?What are the specific tax features of the legislation?

For the exclusive use of A. Alcivar, 2024.
CASE: A-230
DATE: 05/01/17
THE PFIZER-ALLERGAN TAX INVERSION
I have a duty to increase or defend the value of the company for the shareholders and I also have
a duty to our colleagues. I want them to have a company that’s robust and that can grow and that
they can have careers in, and be developed in, and I feel that we’re at a tremendous disadvantage
right now in that race. I have foreign companies who have tax rates of 15 percent who can invest
$2 to $3 billion more in research than we can and we’re fighting with one hand tied behind our
1
back.
—Ian Read, Chairman of the Board and Chief Executive Officer, Pfizer
In November 2015, U.S.-based biopharmaceuticals company Pfizer [NYSE: PFE] and Irelandbased pharmaceutical company Allergan [NYSE: AGN] announced a $160 billion merger to
move Pfizer’s domicile out of the United States to Ireland in the largest inversion deal ever. The
announcement came just days after the U.S. Treasury Department laid out a set of restrictions on
tax inversions; however, the deal was structured to avoid those restrictions.2
According to the U.S. Department of the Treasury, “By undertaking an inversion transaction,
companies move their tax residence overseas to avoid U.S. taxes without making significant
changes in their business operations.”3 (See Exhibit 1 for a diagram of U.S. taxation pre- and
post-inversion.) Two primary benefits provided by inversions were: (1) the removal of a
company’s foreign operations and income from the U.S. taxing jurisdiction to achieve pure
1
Richard Rubin and Jamie Heller, “Pfizer and Ireland-based Allergan confirmed they are in preliminary talks to
merge,” The Wall Street Journal, October 29, 2015, https://www.wsj.com/articles/pfizer-ceo-says-u-s-tax-regimepushing-him-to-seek-alternative-1446140269 (June 1, 2017).
2
Allergan shareholders would own more than 40 percent of the combined company; Pfizer shareholders would own
56 percent of the combined company. For additional information on prior efforts by the U.S. Treasury to reduce the
benefits of corporate inversions, see U.S. Department of the Treasury Press Release, “Treasury Announced
Additional Actions to Reduce Tax Benefits of Corporate Inversions,” November 19, 2015,
https://www.treasury.gov/press-center/press-releases/Pages/jl0282.aspx (December 1, 2016).
3
U.S. Department of the Treasury Press Release, “Treasury Announces Additional Action to Curb Inversions,
Address Earnings Stripping,” April 4, 2016, https://www.treasury.gov/press-center/press-releases/Pages/jl0405.aspx
(December 1, 2016).
Jaclyn Foroughi, CFA, and Professor Rebecca Lester prepared this case as the basis for class discussion rather than
to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2017 by the Board of Trustees of the Leland Stanford Junior University. Publicly available cases are
distributed through Harvard Business Publishing at hbsp.harvard.edu and The Case Centre at thecasecentre.org;
please contact them to order copies and request permission to reproduce materials. No part of this publication may
be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means ––
electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate
School of Business. Every effort has been made to respect copyright and to contact copyright holders as
appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at
businesscases@stanford.edu or write to Case Writing Office, Stanford Graduate School of Business, Knight
Management Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 2
“territorial” tax treatment (in which income was taxed only in the country where it was earned);
and (2) the reduction of U.S. taxes on income from U.S. operations through the use of various
“earnings stripping strategies” (e.g., making payments of deductible interest or royalties from the
U.S. entity to a new foreign parent).4 According to Reed College economist Kim Clausing,
inversions and other income-shifting techniques reduced Treasury revenues by as much as $111
billion in 2012.5
Given the economic impact of inversions and their propensity to undermine the U.S. tax base, the
Pfizer-Allergan inversion drew harsh criticism from presidential candidates in late 2015.
Independent-cum-democrat Bernie Sanders asserted, “The Pfizer-Allergan merger would…allow
another major American corporation to hide its profits overseas.”6 Democratic candidate and
former U.S. Secretary of State Hillary Clinton said, “For too long, powerful corporations have
exploited loopholes that allow them to hide earnings abroad to lower their taxes. Now Pfizer is
trying to reduce its U.S. tax bill even further. This proposed merger, and so-called inversions by
other companies, will leave U.S. taxpayers holding the bag.”7 Meanwhile, Republican candidate
Donald Trump blamed politicians: “The fact that Pfizer is leaving our country with a tremendous
loss of jobs is disgusting. Our politicians should be ashamed.”8
HISTORY OF TAX INVERSIONS
One of the first recognized inversions occurred in 1982 when New Orleans-based construction
company McDermott Inc. inverted to Panama by making its Panamanian subsidiary the
corporate parent. Doing so allowed the company to pass corporate profits to shareholders via the
Panamanian parent without facing U.S. corporate income tax.
Over a decade later, in 1993, El Paso-based personal-care products company Helen of Troy
became a Bermudan company. Unlike the McDermott transaction, in which an existing foreign
subsidiary became the new parent company, Helen of Troy created a new subsidiary in Bermuda
and then flipped that subsidiary to make it the parent. In response, in 1996, the IRS adopted
regulations that imposed a shareholder-level tax on corporate inversion transactions;9
specifically, in an inversion, shareholders exchanged their shares of the U.S. company for shares
of the foreign company, and this exchange was taxable to the shareholders (but no tax was
assessed at the entity level).
4
The strategy permitted a company to deduct the interest or royalties in the high-tax U.S. and report the interest or
royalties in the foreign parent’s lower-taxed home country.
5
Howard Gleckman, “How Much Revenue the U.S. is Losing Through Tax Inversions, And How Much Worse It
May Get,” Forbes, January 26, 2016, http://www.forbes.com/sites/beltway/2016/01/26/tyco-tax-inversions-incomeshifting-and-lost-revenue/#7dcdba334867 (November 30, 2016).
6
Bernie Sanders press release, “Sanders Condemns Pfizer-Allergan Merger,” November 23, 2015,
https://www.sanders.senate.gov/newsroom/press-releases/sanders-condemns-pfizer-allergan-merger
(April
20,
2017).
7
Lydia Ramsey, “Pfizer and Allergan just announced a $160 billion megamerger, and it’s already drawing political
backlash,” Business Insider, November 23, 2015, http://www.businessinsider.com/bernie-sanders-on-allerganpfizer-deal-2015-11 (April 20, 2017).
8
Ibid.
9
For further information, see Notice 94-46 and the Treasury Regulations under Internal Revenue Code (IRC)
367(a).
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 3
A wave of offshore incorporations of U.S. multinationals continued over the next decade until
the threat of imminent legislation (four bills introduced by the House of Representatives and two
by the Senate) in mid-2002 halted inversions (see Exhibit 2 for a list of notable past inversions
and spin-offs).
In 2004, Congress enacted the American Jobs Creation Act. Among other tax provisions, the
Act added Section 7874 to the tax law, which made it more difficult for U.S. companies to
escape U.S. taxation through an inversion transaction. Specifically, the new law specified that
the U.S. would continue to tax inverted corporations as domestic entities if (i) a U.S. corporation
was acquired by a non-U.S. corporation or partnership, (ii) 60 percent or more of the firm’s stock
was held by the same shareholders before and after the inversion, and (iii) the combined
company did not have “substantial business activities” where it was reincorporated. In other
words, if former owners of the U.S. corporation acquired 60 percent or more of the new foreign
parent, then the company would still be subject to the same U.S. tax regime if the company did
not have substantial business activities in the new jurisdiction. The Treasury Regulations
defined “substantial business activities” as having at least 25 percent of the combined company’s
asset value, gross income, and employees (by number and compensation) in the new location.
To avoid the 60 percent threshold, companies pursued combinations with roughly equal-sized
foreign corporations (or sometimes with larger foreign corporations) so that post-transaction, the
shareholders of the original company would retain significant ownership but own slightly less
than 60 percent. As companies began exploiting exceptions to the new laws, a new wave of
inversions began, which elicited additional regulatory actions to limit the tax benefits of these
transactions.
INTERNATIONAL TAXATION BACKGROUND
In 2015, the U.S. corporate income tax rate, at 35 percent, remained the highest in the developed
world, and the third highest in the world. Since the mid-1980s, the U.S. corporate income tax
rate had changed very little; however, most other advanced industrial countries had lowered their
tax rates over this 30-year period (see Exhibit 3 for a chart of historical corporate income tax
rates among high-taxed developed countries).
In addition, while most developed economies employed a territorial tax system, in which income
was only taxed in the country where it was earned, the U.S. employed a worldwide system with
deferral. Under this system, the IRS would tax income earned both domestically and abroad;
however, corporations could defer paying U.S. taxes on foreign income until foreign profits were
repatriated as a cash dividend.10 In addition, the U.S. tax system allowed for a foreign tax credit
on repatriated income, which reduced the U.S. tax liability for taxes paid to foreign governments.
Because of the high U.S. corporate tax rate, foreign tax credits were usually not sufficient to
completely offset the incremental U.S. tax liability due upon a repatriation of cash to the U.S.
Consequently, companies had an incentive to keep cash offshore rather than repatriate to save
U.S. cash taxes.
10
U.S. taxation on foreign passive income could generally not be deferred and was taxed in the year it was earned
(i.e., regardless of cash repatriation) under Subpart F of the Internal Revenue Code.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 4
Unremitted Foreign Earnings and Permanently Reinvested Earnings
Total unremitted foreign earnings represented the amount of foreign income earned by U.S.
companies abroad that had not yet been subject to U.S. tax. The financial accounting rules in
place in 2015 stated that U.S. multinationals should record U.S. tax expense on these earnings,
regardless of whether the earnings had been repatriated or not. Therefore, for financial
accounting purposes, companies recorded a deferred tax liability and an associated deferred tax
expense related to the incremental U.S. tax liability that would be due in a future period at the
time of an eventual repatriation. In effect, this deferred tax expense lowered net income and
resulted in a higher effective tax rate (ETR).
However, the financial accounting rules under U.S. GAAP (ASC 740-30-25) also included an
important exception for income that the company designated as “permanently reinvested
earnings” (PRE). These were earnings that the company had identified as indefinitely reinvested
in a foreign location, with no intention to repatriate. By declaring some or all of the firm’s total
unremitted foreign earnings as PRE (which was generally disclosed in the financial statements),
multinationals could avoid accruing deferred U.S. income tax expense and recording the
associated deferred tax liability on those earnings—which in turn resulted in a higher net income
and a lower reported ETR.
Retaining foreign earnings offshore resulted in U.S. cash tax savings (as outlined above), and
designating those earnings as PRE in the company’s financial statements provided financial
statement benefits (through lower reported income tax expense and higher reported net income).
According to a study examining the effects of these financial accounting rules on companies’
decisions to retain income offshore, “Avoiding financial accounting income tax expense is as
important as avoiding cash income taxes when corporations decide where to locate operations
and whether to repatriate foreign earnings.”11 Consequently, policy makers focused on
permanently reinvested earnings due to “its visibility in public company financial statements, its
usefulness as an estimate of unremitted foreign earnings, and the belief that it represents both a
potential influx of cash into the U.S. economy and potential source of U.S. tax revenue.”12
These cash tax and financial accounting incentives to retain earnings abroad resulted in
unprecedented sums of foreign profits that had not been subject to U.S. tax. According to one
nonprofit, nonpartisan think tank, the Institute on Taxation and Economic Policy, nearly twothirds of Fortune 500 corporations held more than $2.6 trillion of permanently reinvested profits
offshore (see Exhibit 4 for a comparison of companies with large disclosed balances of
permanently reinvested earnings) at the end of 2016.13 Of the total amount of offshore earnings,
11
John Graham, Michelle Hanlon, and Terry Shevlin, “Real Effects of Accounting Rules: Evidence from
Multinational Firms’ Investment Location and Profit Repatriation Decisions,” Journal of Accounting Research,”
Vol. 49 No. 1, March 2011, p. 137-138.
12
Jennifer Blouin, Linda Krull, and Leslie Robinson, “The Location, Composition, and Investment Implications of
Permanently Reinvested Earnings,” December 2016, http://faculty.tuck.dartmouth.edu/images/uploads/faculty/
leslie-robinson/blouinkrullrobinson1.pdf (April 20, 2017), p. 3.
13
Institute on Taxation and Economic Policy, “Fortune 500 Companies Hold a Record $2.6 Trillion Offshore,”
March 28 2017, https://itep.org/wp-content/uploads/pre0327.pdf (May 1, 2017).
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 5
approximately $850 billion was estimated to be held in cash as of 2012, with the remaining
amount related to holdings of marketable securities or investments in foreign operations.14
While companies generally did not disclose details of the location of their foreign cash or other
assets, estimates suggested that nearly half of offshore cash and securities were actually held in
U.S. bank accounts and investments.15 Some companies, such as technology-focused Google,
Microsoft, and EMC, kept more than three-quarters of foreign subsidiaries’ cash at U.S. banks,
held in U.S. dollars, or parked in U.S. government and corporate securities.16 However, because
these accounts were in the name of the foreign subsidiary, they could not be accessed by the U.S.
parent company for domestic operations, domestic investment, or for shareholder payout.
PFIZER
Company Background
Founding
Pfizer & Co. was founded by cousins Charles Pfizer, a chemist, and Charles Erhart, a
confectioner, in 1849. Headquartered in Brooklyn, New York, Pfizer was originally a “finechemicals business.” Its first product, a palatable form of santonin—an antiparasitic used to treat
intestinal worms, a common affliction in the mid-19th century—blended santonin with almondtoffee flavoring and was shaped into a candy cone.
Demand for vital drugs
As the U.S. became embroiled in the Civil War, demand for painkillers, disinfectants, and
preservatives soared. By 1862, Pfizer had expanded production of tartaric acid (used as a
laxative and skin coolant) and cream of tartar (used as a diuretic and cleansing agent) to meet the
needs of the Union Army. In addition to medicinal applications, iodine, morphine, chloroform,
camphor, and mercurial preparations were used in the emerging field of photography. By 1868,
Pfizer had doubled revenues since the start of the war, and counted over 150 employees at its
new headquarters in Manhattan, New York.
Demand for discretionary chemicals
In 1880, Pfizer began manufacturing citric acid, adding tartness to new soft drinks like CocaCola™, Dr. Pepper™, and Pepsi-Cola™. As the popularity of soft drinks soared, citric acid
became Pfizer’s main product, leading to growth for decades to follow.
In 1891, Erhart died; in accordance with their partnership agreement, Pfizer exercised an option
to purchase Erhart’s share of the partnership at half of its value, making Pfizer the sole owner of
14
Christine L. Dobridge and Paul S. Landefeld, “Is the Cash Locked Out? Evidence from Multinational Tax
Filings,” Federal Reserve Board of Governors working paper, March 2017, p. 21.
15
U.S. Senate Committee on Homeland Security and Governmental Affairs, “New Data Show Corporate Offshore
Funds Not ‘Trapped’ Abroad: Nearly Half of So-Called ‘Offshore’ Funds Already in the United States,” HSGAC
Subcommittee on Investigations, December 14, 2011, https://www.hsgac.senate.gov/subcommittees/investigations/
media/new-data-show-corporate-offshore-funds-not-trapped-abroad-nearly-half-of-so-called-offshore-fundsalready-in-the-united-states (January 17, 2017).
16
Kate Linebaugh, “Firm Keep Stockpiles of ‘Foreign’ Cash in U.S.,” The Wall Street Journal, January 22, 2013,
http://www.wsj.com/articles/SB10001424127887323301104578255663224471212 (January 17, 2017).
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 6
the company. Less than a decade later, in 1900, Pfizer officially incorporated in the state of New
Jersey with stock distributed amongst Pfizer’s sons, Charles Pfizer Jr. and Emile Pfizer, as well
as Erhart’s son (Pfizer’s nephew), William Erhart. By the time of Pfizer’s death in 1906, sales at
Pfizer exceeded $3 million, making it one of the largest specialty chemical companies in the
country.
By the 1930s, Pfizer had become the leading producer of vitamins, with the development of
fermentation-free ascorbic acid (vitamin C), riboflavin (vitamin B2), and vitamin A. As World
War II broke out, Pfizer became the leader in fermentation technology, which helped the
company mass-produce penicillin. Pfizer was the world’s largest producer of the “miracle drug.”
The company incorporated under the laws of the State of Delaware on June 2, 1942. Less than
one month later, Pfizer held an initial public offering (IPO), raising $5.9 million for a total
market capitalization of $12.4 million.
Quest to fight disease
By the company’s 100th anniversary, in 1949, Pfizer scientists began to focus on finding
organisms to fight disease. In 1950, Terramycin®, a broad-spectrum antibiotic, became the first
pharmaceutical sold in the U.S. under the Pfizer label. The drug also marked the beginning of
the Pfizer pharmaceutical sales force—a team of eight salesmen waiting at pay phones across the
nation to educate physicians about Pfizer’s first proprietary pharmaceutical product.
International expansion
As a result of the success of its discovery program, Pfizer began its expansion into overseas
markets with the creation of the International Division. In 1951, Pfizer established operations in
Belgium, Brazil, Canada, Cuba, England, Mexico, Panama, and Puerto Rico. Four years later, in
1955, Pfizer opened a fermentation plant in England, laying the foundation of its research and
development (R&D) operations in Great Britain. By 1958, international personnel had nearly
doubled from 4,300 in the previous year to 7,000, as Pfizer continued to open new
pharmaceutical plants in Mexico, Italy, and Turkey.
Continued innovation
In 1972, Pfizer crossed the billion-dollar sales threshold. Chairman Ed Pratt increased Pfizer’s
R&D budget from 5 percent to 15 to 20 percent of sales and led the battle for ongoing
intellectual property protection worldwide. Meanwhile, the company continued to introduce new
drugs for the control of high blood pressure, inflammation, diabetes, angina and hypertension,
fungal infections, depression, respiratory problems, skin infections, prostate hyperplasia, and
erectile dysfunction.
Intellectual Property
In an industry taking an average of 10 to 15 years and up to $2.6 billion to develop and bring to
market a single new medicine, health care companies relied heavily on protection of their
internally developed intellectual property to earn and sustain financial benefits from investment
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 7
in innovation.17 Obtaining and extending these protections on a global scale, however, proved
challenging. According to Pfizer:
Patents for individual products extend for varying periods according to the date of
patent filing or grant and the legal term of patents in the various countries where
patent protection is obtained. The actual protection afforded by a patent, which
varies from country to country, depends upon the type of patent, the scope of its
coverage and the availability of legal remedies in the country. Further, patent
term extension may be available in many major countries to compensate for a
regulatory delay in approval of the product.18
As a result of the complexities of international patent law, intellectual property protection varied
not only by product but also by country (see Exhibit 5 for a list of significant Pfizer patents and
other intellectual property rights).
Mergers and Acquisitions (M&A)
Operating within a highly acquisitive industry, Pfizer was well-versed in corporate deals. Since
inception through 2016, Pfizer participated in 131 M&A transactions. Of these, Pfizer acted as
buyer in 56 deals.19 Across the 39 deals in which values were disclosed, Pfizer invested over
$287 billion in these acquisitions, for an average deal value of $7.4 billion. In addition to
Allergan, Pfizer had also planned to acquire competitor AstraZeneca in 2014, but the transaction
failed after AstraZeneca rejected two bids for $110 billion and $127 billion in March 2014 and
April 2014, respectively. Other significant acquisitions of pharmaceutical companies by Pfizer
included the purchase of Warner-Lambert Company in June 2000 for $86 million, Wyeth in
October 2009 for $80 million, and Pharmacia in April 2003 for $68 million.
Allergan
Allergan, perhaps most well-known as the maker of medical and aesthetic drug Botox, was also
highly acquisitive, participating in 60 M&A deals from inception through 2016. Of 41 deals in
which Allergan acted as buyer, values were disclosed for 36 transactions with a total value of
$128 billion (an average deal value of $3.5 billion). Of 19 deals in which Allergan acted as
seller, values were disclosed for 11 transactions with a total value of $42 billion (an average deal
value of $3.8 billion).
The result of a number of mergers itself, previously California-based Allergan was acquired by
Ireland-based Actavis plc in March 2015 for $73 billion.20 The merger was motivated by the
17
Tufts Center for the Study of Drug Development, “Cost to Develop and Win Marketing Approval for a New Drug
is $2.6 Billion,” November 18, 2014, http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study
(May 2, 2017).
18
Pfizer Inc. 2016 Form 10-K, p. 8.
19
By comparison, Pfizer acted as seller in 75 deals. Of the 41 deals for which values were disclosed, over $30
billion was received, for an average deal value of $737 million.
20
Actavis plc was also the result of an inversion transaction with Ireland-based Warner Chilcott plc in 2013.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 8
attempted hostile takeover of Allergan by Canada-based Valeant Pharmaceuticals.21 Despite
Actavis’s white knight takeover of Allergan and the relocation of its combined headquarters to
Actavis’s home country of Ireland, the merged entity retained the name Allergan.
PFIZER IN 2016
By 2016, Pfizer was a research-based, global biopharmaceutical company with corporate
headquarters in New York City and properties extending internationally to over 75 countries (see
Exhibit 6 for a summary of Pfizer’s multinational subsidiaries). Pfizer employed approximately
96,500 individuals in operations throughout the world, with the objective of applying “science
and our global resources to bring therapies to people that extend and significantly improve their
lives through the discovery, development and manufacture of healthcare products.”22
Financials
The majority of Pfizer revenues came from the manufacture and sale of biopharmaceutical
products. In 2016, revenues were nearly $53 billion, an increase of 8.1 percent compared to
2015. Over the previous decade, revenues had grown at a 0.9 percent annual rate (see Exhibit 7
for Pfizer’s historical financial statements from 2007-2016).
In 2016, Pfizer recorded direct product sales of more than $1 billion for each of its eight top
products, representing 43 percent of revenues. This was consistent with the year prior, in which
seven products comprised more than $1 billion in sales each, representing 44 percent of
revenues.
Like most pharmaceutical companies, R&D represented a crucial investment in the development
of products. In 2016, Pfizer spent $7.9 billion on R&D, which represented 14.9 percent of sales,
and was 2.4 percent higher than 2015 spending on R&D. Pfizer’s R&D costs in 2016 were in
line with its ten-year average R&D spending at 15.2 percent of sales.
In 2016, Pfizer reported profits of $7.2 billion, an increase of 3.7 percent relative to 2015, when
profits were down 23.8 percent as compared to 2014. This was the first increase in annual profit
since 2013 when Pfizer faced a “patent cliff” in which the company faced a sharp decline in sales
as a result of patent expirations.
Domestic and Foreign Earnings
As a multinational company with operations in many countries, Pfizer generated a significant
amount of sales in foreign markets. Specifically, international revenue represented 50 percent of
total revenues in 2016, compared to 56 percent in 2015 and 62 percent in 2014 (see Exhibit 8 for
a chart of Pfizer’s revenue and pre-tax income by geography from 2008 to 2016). While
21
Valeant was also the result of a 2010 inversion with Canada-based pharmaceutical company Biovail. For further
information on Valeant Pharmaceuticals, see “Valeant Pharmaceuticals: Aggressive Accounting Games,” GSB No.
A-229.
22
Pfizer 2016 Financial Report, p. 2.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 9
emerging markets represented a significant growth opportunity, the percentage of foreign sales
generated by developed countries in Europe declined over time.
Despite U.S. revenues constituting an average of approximately 43 percent of all sales between
2008 and 2016, the company consistently reported a pre-tax domestic loss in each of the nine
years of the same period. In contrast, pre-tax income attributed to the international segment
ranged from $11.5 billion to $17.4 billion over the same period.
Taxes
According to Pfizer, the proposed merger with Allergan would have resulted in an effective tax
rate of 17 to 18 percent in the full first year after closing.23 This compared to an average
effective tax rate of 25.3 percent from 2011 to 2015 (see Exhibit 9 for excerpts from Pfizer’s
notes to consolidated financial statements from 2014 to 2016).
One month before the announced merger, Pfizer CEO Ian Read said that the company was at “a
tremendous disadvantage” under the U.S. corporate tax code and that Pfizer was competing
against foreign companies “with one hand tied behind our back.” Upon announcement of the
transaction in November 2015, Read also stated that the inversion and move to Ireland “would
significantly cut Pfizer’s tax bill and give it more cash than it could invest in the United States
and ultimately add jobs.”24
CONCLUSION
In April 2016, the U.S. Department of the Treasury issued new rules intended to discourage tax
inversion deals. Specifically, the rules changed the methodology for calculating the 60 percent
ownership threshold, which in effect would have resulted in Pfizer shareholders exceeding the 60
percent ownership threshold post-transaction, thereby continuing to subject the company to the
U.S. tax regime. In addition, the rules proposed that any note distributed by a U.S. company to a
related foreign company would be treated as stock (stock dividends were not deductible so the
new rules would limit future earnings stripping). Finally, the earnings stripping rule would
extend to all cross-border combinations including U.S. corporations that merge with smaller
foreign corporation, foreign corporations that take over smaller U.S. corporations, and a
combination of equals. Collectively, these rules further limited the potential tax benefits to a tax
inversion transaction.
23
Pfizer press release, “Pfizer and Allergan to Combine,” November 23, 2015, http://press.pfizer.com/pressrelease/pfizer-and-allergan-combine (May 2, 2017).
24
Michael J. de la Merced, David Gelles, and Leslie Picker, “Pfizer Chief Defends Merger with Allergan as Good
for U.S.,” The New York Times, November 23, 2015, https://www.nytimes.com/2015/11/24/business/dealbook/
pfizer-allergan-merger-inversion.html?_r=0 (June 2, 2017).
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 10
The Pfizer-Allergan Tax Inversion A-230
Exhibit 1
Income Subject to U.S. Taxation Pre- and Post-Inversion
Pre-Inversion
U.S. Parent
High-taxed
Foreign
Subsidiary
High-taxed
Foreign
Subsidiary
Low-taxed
Foreign
Subsidiary
Low-taxed
Foreign
Subsidiary
Post-Inversion
Low-taxed
Foreign Parent
U.S. Operations
High-taxed
Foreign Sub.
Low-taxed
Holding Co.
Low-taxed
Foreign Sub.
Low-taxed
Foreign Sub.
Subject to U.S. taxation
Source: Compiled by authors.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 11
The Pfizer-Allergan Tax Inversion A-230
Exhibit 2
Notable Past Inversions and Spin-offs
*Shaded companies represent canceled inversions; italicized companies denote spinoffs or other means by which a
U.S. company obtains a foreign address.
GovtYEAR
2016
2016
2016
2016
2016
2016
2015
2015
2015
2015
2015
2015
2015
2014
2014
2014
2014
2014
2014
2014
2014
2013
2013
2013
2013
2013
2013
2013
2013
2012
2012
2012
2012
2012
2012
2012
2012
2011
2011
2010
2010
2010
2010
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
CURRENT NAME
Pfizer
Adient plc
CardTronics
IHS Markit Ltd.
Johnson Controls Inc.
Waste Connections Inc.
CF Industries Holding Inc.
Arris International PLC
Applied Materials
Steris Plc
Livanova Plc
Wright Medical Group NV
Civeo Corp.
Energy Fuels Inc.
C&J Energy Services Ltd.
Mylan Inc.
Medtronic Inc.
Chiquita Brands
Restaurant Brands Int. Inc.
Horizon Pharma Inc.
Theravance Biopharma Inc.
Paragon Offshore Plc
Endo International Plc
Multi Packaging Solutions Int. Ltd.
Tower Group International Ltd.
Axalta Coating Systems Ltd.
Liberty Global Plc
Cadence Pharmaceuticals
Perrigo Co. Plc
Actavis Plc
Mallinckrodt Plc
Allegion Plc
Jazz Pharmaceuticals Plc
Tronox Ltd.
Rowan Cos. Plc
Aon Plc
Eaton Corp. Plc
Pentair Ltd.
Stratasys Ltd.
D E Master Blenders 1753 NV
TE Connectivity Ltd.
Alkermes Plc
Global Indemnity
Pride International
Trinseo SA
Valeant Pharmaceuticals Intl. Inc.
Invitel Holdings A/S
Delphi Automotive Plc
Samsonite International SA
Altisource Portfolio Solutions SA
Plastinum Polymer Tech Corp.
Vantage Energy Services
InterAmerican Acquisition Grp
Ideation Acquisition Grp
2020 ChinaCap Acquirco
Alyst Acquisition Group
Alpha Security Group
Hungarian Telephone & Cable Corp.
INDUSTRY
Pharmaceuticals
Automotive
Data Processing
Software
Conglomerate
Waste Management
Agricultural Fertilizer
Telecommunications
Semiconductor
Healthcare
Medical Equipment
Medical Devices
Oil & Gas
Mining
Oil & Gas
Pharmaceuticals
Medical Equipment
Produce
Restaurant Chain
Pharmaceuticals
Pharmaceuticals
Oil Services
Pharmaceuticals
Packaging
Insurance
Coatings
Telecommunications
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Security
Pharmaceuticals
Mining
Offshore Drilling
Insurance
Power Management
Water Filtration
Printer Manufacturer
Food and Beverage
Industrial Manufacturer
Biotechnology
Insurance
Offshore Drilling
Chemicals
Pharmaceuticals
Telecommunications
Automotive
Consumer Products
Real Estate
Industrial Manufacturer
Offshore Drilling
Business Management
Private Equity
Financial
Financial
Security
Telecommunications
PREVIOUS
HEADQUARTERS
New York
Michigan
Texas
Colorado
Wisconsin
Texas
Illinois
Georgia
Texas
Ohio
Texas
Tennessee
Texas
Wyoming
Texas
Pennsylvania
Minnesota
North Carolina
Florida
Illinois
California
Cayman Islands
Pennsylvania
New York
New York
Pennsylvania
Colorado
California
Michigan
New Jersey
Ireland
Bermuda
California
Oklahoma
Texas
Illinois
Ohio
Minnesota
Minnesota
Illinois
Pennsylvania
Massachusetts
Pennsylvania
Texas
Pennsylvania
California
Washington
Michigan
Massachusetts
Florida
California
Texas
California
Delaware
Massachusetts
New York
New York
Washington
NEW COUNTRY OF
INCORPORATION
Ireland
Ireland
United Kingdom
United Kingdom
Ireland
Canada
United Kingdom
United Kingdom
Netherlands
United Kingdom
United Kingdom
Netherlands
Canada
Canada
Bermuda
Netherlands
Ireland
Ireland
Canada
Ireland
Cayman Islands
United Kingdom
Ireland
Bermuda
Bermuda
Bermuda
United Kingdom
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Australia
United Kingdom
United Kingdom
Ireland
Switzerland
Israel
Netherlands
Switzerland
Ireland
Ireland
United Kingdom
Luxembourg
Canada
Denmark
Jersey
Luxembourg
Luxembourg
Netherlands
Cayman Islands
British Virgin Islands
Cayman Islands
British Virgin Islands
British Virgin Islands
Bermuda
Denmark
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 12
The Pfizer-Allergan Tax Inversion A-230
2009
GovtYEAR
2009
2009
2008
2008
2008
2008
2008
2008
2008
2007
2007
2007
x 2007
2007
x 2007
x 2007
x 2007
2006
2006
2006
2005
x 2005
2003
2003
2002
x 2002
x 2002
x 2002
x 2002
2002
2002
x 2002
x 2002
x 2001
x 2001
x 2001
x 2001
2000
2000
x 2000
x 2000
x 2000
x 2000
x 2000
x 1999
x 1999
x 1999
x 1999
x* 1998
x 1998
x 1998
x 1997
x 1997
1996
x 1996
x 1996
1994
x 1994
1990
x 1983
Exhibit 2 (cont.)
Notable
Past
Inversions andWashington
Spin-offs
Hungarian Telephone & Cable Corp.
Telecommunications
CURRENT NAME
INDUSTRY
Tim Hortons Inc.
Restaurant Chain
Ensco Plc
Oil & Gas
Ascend Acquisition Corp.
Financial
Energy Infrastructure Acquisition Corp. Energy
Arcade Acquisition Group
Financial
Patch International
Oil & Gas
Foster Wheeler
Engineering
ConvaTec
Medical Devices
Tyco Electronics
Industrial Manufacturer
Covidien Plc
Healthcare
Invesco Ltd.
Investment Management
James River Group
Insurance
Fluid Media Network
Music Distribution
Argonaut Group
Insurance
Star Maritime Acquisition Group
Shipping
Western Goldfields Inc.
Mining
Lincoln Gold
Mining
Freescale Semiconductor Ltd.
Semiconductor
Travelport Worldwide Ltd.
Travel
Sensata Technologies Holding NV
Technology
Lazard Ltd.
Financial Services
Luna Gold
Mining
The Stanley Works
Manufacturing
Global Indemnity Plc
Insurance
Michael Kors Ltd.
Apparel Manufacturer
VistaPrint NV
Digital Printing
Herbalife Ltd.
Nutrition
PWC Consulting Ltd.
Consulting
Ingersoll-Rand Plc
Industrial Manufacturer
Weatherford International Ltd.
Oil & Gas
Nabors Industries Ltd.
Oil & Gas
Cimpress NV
Mass Customization
Cooper Industries Plc
Electrical Products
Noble Corp. Plc
Offshore Drilling
Global Marine
Engineering
Accenture Plc
Consulting
Foster Wheeler AG
Engineering
GlobalSantaFe Corp.
Offshore Drilling
Tycom Ltd.
Diversified Manufacturer
Arch Capital Group Ltd.
Insurance
R&B Falcon Corp.
Drilling
Seagate Technology Plc
Data Storage
Everest Re Group Ltd.
Insurance
Applied Power Ltd.
Engineering
Trenwick Group
Insurance
PXRE Group Ltd.
Insurance
XOMA Ltd.
Biotechnology
White Mountains Insurance
Insurance
Transocean Ltd.
Offshore Drilling
PlayStar Wyoming Holding Corp.
Toys
Gold Reserve Inc.
Mining
Fruit of the Loom Ltd.
Apparel Manufacturer
Santa Fe International
Oil & Gas
Tyco International Plc
Diversified Manufacturer
Loral Space & Communications Ltd.
Communications
Chicago Bridge & Iron Co. NV
Engineering
Triton Energy Ltd.
Oil & Gas
Core Laboratories NV
Petroleum
Helen of Troy Ltd.
Consumer Products
Flextronics International Ltd.
Electronics Manufacturing
McDermott International Inc.
Engineering
PREVIOUS
HEADQUARTERS
Ohio
Texas
Pennsylvania
New York
Connecticut
Nevada
Bermuda
New Jersey
New Jersey
Massachusetts
Georgia
North Carolina
Nevada
Texas
Delaware
Idaho
Nevada
Texas
New York
Massachusetts
New York
Nevada
Connecticut
Pennsylvania
New York
Massachusetts
California
Pennsylvania
New Jersey
Texas
Texas
Massachusetts
Texas
Texas
Texas
Illinois
New Jersey
Texas
New Jersey
Connecticut
Texas
California
New Jersey
Wisconsin
Connecticut
New Jersey
California
New Hampshire
Texas
Wyoming
Washington
Kentucky
Texas
New Hampshire
New York
Illinois
Texas
Texas
Texas
California
Louisiana
Denmark
NEW COUNTRY OF
INCORPORATION
Canada
United Kingdom
Bermuda
Marshall Islands
Marshall Islands
Canada
Switzerland
Luxembourg
Switzerland
Ireland
Bermuda
Bermuda
Canada
Bermuda
Marshall Islands
Canada
Canada
Bermuda
Bermuda
Netherlands
Bermuda
Canada
Bermuda
Ireland
British Virgin Islands
Bermuda
Cayman Islands
Bermuda
Bermuda
Bermuda
Bermuda
Netherlands
Bermuda
Cayman Islands
Cayman Islands
Bermuda
Bermuda
Cayman Islands
Bermuda
Bermuda
Cayman Islands
Cayman Islands
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Cayman Islands
Antigua
Bermuda
Cayman Islands
Cayman Islands
Bermuda
Bermuda
Cayman Islands
Cayman Islands
Netherlands
Bermuda
Singapore
Panama
Source: Compiled by authors.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 13
The Pfizer-Allergan Tax Inversion A-230
Exhibit 3
Developed Countries with the Highest Corporate Income Tax Rates
Portugal
Canada
Italy
New Zealand
Greece
Luxembourg
Germany
Australia
Japan
France
Belgium
U.S.
0%
5%
10%
15%
20%
25%
2007
2010
2017
30%
35%
40%
45%
Source: Compiled by authors.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 14
Exhibit 4
Comparison of Top Companies with Large Amounts of Permanently Reinvested Earnings
2016
2015
2014
2013
Indefinitely
2015- Indefinitely
2014- Indefinitely
2013- Indefinitely
reinvested Deferred tax 2016 % reinvested Deferred tax 2015 % reinvested Deferred tax 2014 % reinvested
Deferred
earnings
liability Change
earnings
liability Change
earnings
liability Change earnings
tax liability
Microsoft Corp.
124,000
39,300
14.5%
108,300
34,500
16.6%
92,900
29,600
21.6%
76,400
24,400
Apple Inc.
109,800
35,900
20.0%
91,500
30,000
31.3%
69,700
23,300
28.1%
54,400
18,400
Pfizer Inc.
86,000
23,108
7.5%
80,000
23,626
8.1%
74,000
21,274
7.2%
69,000
19,399
General Electric Co.
82,000
– -21.2%
104,000
– -12.6%
119,000
8.2%
110,000
IBM Corp.
71,400
4.8%
68,100
– 10.9%
61,400
– 17.4%
52,300
Johnson & Johnson
66,200
14.1%
58,000
8.6%
53,400
4.9%
50,900
Cisco Systems Inc.
65,600
13.1%
58,000
– 10.1%
52,700
9.8%
48,000
Merck & Co., Inc
63,100
2,044
6.6%
59,200
2,124
-1.3%
60,000
2,016
5.1%
57,100
2,361
Google Inc.
60,700
4,409
4.1%
58,300
3,468
23.0%
47,400
21.9%
38,900
Exxon Mobil Corp.
54,000
5.9%
51,000
0.0%
51,000
8.5%
47,000
Procter & Gamble Co.
49,000
8.9%
45,000
2.3%
44,000
4.8%
42,000
Citigroup Inc.
47,000
13,100
4.0%
45,200
12,700
3.2%
43,800
11,600
0.0%
43,800
11,700
Oracle
42,600
13,300
12.1%
38,000
11,800
17.3%
32,400
10,000
23.7%
26,200
8,000
Gilead Sciences Inc.
37,600
13,100
31.9%
28,500
9,700
82.7%
15,600
5,500
82.5%
8,550
3,000
Qualcomm Inc.
32,500
11,500
12.8%
28,800
10,200
12.1%
25,700
9,100
19.0%
21,600
7,600
Hewlett-Packard Co.
20,300
5,179 -57.0%
47,200
5,112
10.0%
42,900
7,828
12.3%
38,200
7,469
(in USD millions)
Source: Compiled by authors using company annual filings.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 15
Exhibit 5
List of Significant Pfizer Patents and Other Intellectual Property Rights (2016)
Basic Product Patent Expiration Year
Drug
U.S.
Major EU
Japan
Viagra*
2012
2013
2013
Lyrica*
2018
2014
2022
Chantix
2020
2021
2022
Xeljanz*
2020
N/A
2025
Sutent*
2021
2021
2024
Eliquis*
2023
2026
2026
Ibrance*
2023
2023
N/A
Inlyta
2025
2025
2025
Prevnar 13/Prevenar 13*
2026
2026
2029
Eucrisa
2026
N/A
N/A
Xalkori
2029
2027
2028
* denotes leading brands
Source: Compiled by authors using company annual filing.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
The Pfizer-Allergan Tax Inversion A-230
p. 16
Exhibit 6
Pfizer Subsidiaries by Country (2016)
*Shaded countries represent jurisdictions with low statutory tax rates
Algeria
2
Morocco
1
Angola
1
Namibia
1
Argentina
3
Netherlands
65
Australia
13
New Zealand
3
Austria
5
Nigeria
1
Bahamas
11
Norway
4
Belgium
11
Pakistan
2
Bolivia
2
Panama
4
Bosnia and Herzegovina
1
People’s Republic of China
9
Brazil
10
Peru
4
Canada
2
Philippines
5
Cayman Islands
1
Poland
4
Chile
3
Portugal
12
Colombia
3
Puerto Rico
2
Costa Rica
3
Republic of Korea
2
Croatia
2
Romania
2
Czech Republic
3
Russia
2
Denmark
6
Saudi Arabia
1
Dominican Republic
2
Senegal
1
Ecuador
2
Serbia
1
Egypt
3
Singapore
10
Finland
5
Slovakia
1
France
11
South Africa
2
Germany
14
Spain
10
Ghana
1
Sweden
9
Greece
2
Switzerland
6
Guatemala
2
Taiwan
2
Hong Kong
7
Tanzania
2
Hungary
3
Thailand
5
India
6
Tunisia
2
Indonesia
2
Turkey
3
Ireland
29
Uganda
2
Israel
2
Ukraine
1
Italy
8
United Arab Emirates
2
Japan
6
United Kingdom
25
Kenya
1
United States
137
Luxembourg
42
Uruguay
1
Malaysia
4
Venezuela
3
Mexico
6
Grand Total
589
Source: Compiled by authors using company annual filing.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 17
The Pfizer-Allergan Tax Inversion A-230
Exhibit 7
Pfizer’s Historical Financial Statements (2007-2016)
PFIZER INC
Consolidated Statements of Income
(Millions, except per common share data)
Year Ended December 31,
Revenues
Costs and expenses:
Cost of sales
Selling, informational and administrative expenses
Research and development expenses
Amortization of intangible assets
Merger-related in-process research and development
Restructuring charges and certain acquisition-related costs
Other (income)/deductions net
Income from continuing operations before provision for taxes on income
Provision for taxes on income
Income from continuing operations
Discontinued operations:
Income from discontinued operations net of tax
Gain/(loss) on disposal of discontinued operations net of tax
Discontinued operations net of tax
Net income before allocation to noncontrolling interests
Less: Net income attributable to noncontrolling interests
Net income attributable to Pfizer Inc.
$
Earnings per common share basic:
Income from cont. ops. att. to Pfizer Inc. common shareholders
Discontinued operations net of tax
Net income attributable to Pfizer Inc. common shareholders
Earnings per common share diluted:
Income from cont. ops. att. to Pfizer Inc. common shareholders
Discontinued operations net of tax
Net income attributable to Pfizer Inc. common shareholders
Weighted-average shares basic
Weighted -average shares diluted
2016
52,824
2015
48,851
2014
49,605
2013
51,584
2012
54,657
2011
61,035
2010
65,165
2009
49,269
2008
48,296
2007
48,418
12,329
14,837
7,872
4,056
9,648
14,809
7,690
3,728
9,577
14,097
8,393
4,039
9,586
14,355
6,678
4,599
9,821
15,171
7,482
5,109
14,788
18,973
9,483
5,364
3,145
3,941
9,471
1,153
8,318
8,459
14,752
7,824
2,877
68
4,330
285
10,674
2,145
8,529
8,112
14,537
7,945
2,668
633
2,675
2,032
9,694
1,645
8,049
11,239
15,626
8,089
3,128
283
2,534
(1,759)
9,278
1,023
8,255
78
(69)
1,152
2,860
8,965
1,990
6,975
250
1,009
12,240
3,120
9,119
1,182
(532)
15,716
4,306
11,410
1,810
4,022
11,242
2,221
9,021
12,500
17,581
8,681
5,465
2,841
2,486
11,481
3,621
7,860
17
7,246
31
7,215 $
17
(6)
11
6,986
26
6,960 $
(6)
55
48
9,168
32
9,135 $
308
10,354
10,662
22,072
69
22,003 $
794
4,783
5,577
14,598
28
14,570 $
885
1,304
2,189
10,049
40
10,009 $
(19)
(11)
(30)
8,288
31
8,257 $
97
17
114
8,643
8
8,635 $
78
8,127
23
8,104 $
(69)
8,186
42
8,144
$
1.18 $
1.13 $
1.18 $
1.13 $
1.67 $
1.56
3.23 $
1.21 $
0.75
1.96 $
1.00 $
0.28
1.28 $
1.03 $
$
1.43 $
0.01
1.44 $
1.22 $
0.02
1.23 $
1.19 $
0.01
1.20 $
1.19
(0.01)
1.18
$
1.17 $
1.11 $
1.17 $
1.11 $
1.65 $
2.54
3.19 $
1.20 $
0.74
1.94 $
0.99 $
0.28
1.27 $
1.03 $
$
1.41 $
0.02
1.42 $
1.02 $
1.21 $
0.02
1.23 $
1.19 $
0.01
1.20 $
1.18
(0.01)
1.17
6,089
6,159
6,176
6,257
6,346
6,424
6,813
6,895
7,442
7,508
7,817
7,870
8,036
8,074
7,007
7,045
6,727
6,750
6,917
6,939
1,724
3,655
8,351
1,123
7,229
16
–
–
–
–
1.03 $
–
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 18
The Pfizer-Allergan Tax Inversion A-230
Exhibit 7 (cont.)
Pfizer’s Historical Financial Statements (2007-2016)
PFIZER INC
Consolidated Balance Sheets
(Millions, except preferred stock issued and per common share data)
Year Ended December 31,
2016
Assets
Cash and cash equivalents
Short-term investments
Trade accounts receivable, less allowance for doubtful accounts
Inventories
Current tax assets
Other current assets
Total current assets
Long-term investments
Property, plant and equipment, less accumulated depreciation
Identifiable intangible assets, less accumulated amortization
Goodwill
Noncurrent deferred tax assets and other noncurrent tax assets
Other noncurrent assets
Total assets
Liabilities and Equity
Short-term borrowings, including current portion of long-term debt
Trade accounts payable
Dividends payable
Income taxes payable
Accrued compensation and related items
Other current liabilities
Total current liabilities
Long-term debt
Pension benefit obligations, net
Postretirement benefit obligations, net
Noncurrent deferred tax liabilities
Other taxes payable
Other noncurrent liabilities
Total liabilities
2015
2014
2013
2012
2011
2010
2009
2008
2007
$
2,595 $
3,641 $
3,343 $
2,183 $ 10,081 $
3,182 $
1,735 $
1,978 $
2,122 $
3,406
15,255
19,649
32,779
30,225
22,318
23,270
26,744
25,186
22,433
22,686
8,225
8,176
8,401
9,357
10,675
13,058
13,380
14,645
8,958
9,843
6,783
7,513
5,663
6,166
6,076
6,610
8,275
12,403
4,381
5,302
3,041
2,662
2,566
4,624
6,170
9,380
9,440
6,962
5,034
5,498
3,050
2,163
2,843
3,689
9,511
5,317
1,439
496
148
114
38,949
43,804
55,595
56,244
64,831
60,817
61,013
61,670
43,076
46,849
7,116
15,999
17,518
16,406
14,149
9,814
9,747
13,122
11,478
4,856
13,318
13,766
11,762
12,397
13,213
15,921
18,645
22,780
13,287
15,734
52,648
40,356
35,166
39,385
45,146
51,184
57,555
68,015
17,721
20,498
54,449
48,242
42,069
42,519
43,661
44,569
43,928
42,376
21,464
21,382
1,812
1,794
1,944
1,554
1,565
4,122
5,949
3,323
3,499
3,513
3,596
3,233
5,697
4,126
4,986
$ 171,615 $ 167,460 $ 167,566 $ 172,101 $ 185,798 $ 188,002 $ 195,014 $ 212,949 $ 111,148 $ 115,268
$
10,688 $
4,536
1,944
437
2,487
11,023
31,115
10,160 $
3,620
1,852
418
2,359
10,990
29,399
5,141 $
3,210
1,711
531
1,841
9,153
21,587
6,027 $
3,234
1,663
678
1,792
9,972
23,366
6,424 $
2,921
1,733
979
1,875
15,254
29,186
4,016 $
3,678
1,796
1,009
2,120
16,290
28,909
5,603 $
3,994
1,601
951
2,080
14,407
28,636
5,469 $
4,370
1,454
10,107
2,242
13,583
37,225
9,320 $
1,751
2,159
656
1,667
11,456
27,009
5,825
2,270
2,163
1,380
1,974
8,223
21,835
31,398
6,406
1,766
30,753
4,000
6,337
111,775
28,818
6,310
1,809
26,877
3,992
5,257
102,463
31,541
7,885
2,379
23,317
4,353
4,883
95,944
30,462
4,635
2,668
25,590
3,993
4,767
95,481
31,036
7,782
3,491
21,193
6,581
4,851
104,120
34,926
6,355
3,344
18,861
6,886
6,100
105,381
38,410
6,194
3,035
18,628
6,245
5,601
106,749
43,193
6,392
3,243
17,839
9,000
5,611
122,503
7,963
4,235
1,604
2,959
6,568
3,070
53,408
7,314
2,599
1,708
7,696
6,246
2,746
50,144
Commitments and Contingencies
Preferred stock, no par value, at stated value
Common stock
Additional paid-in caoital
Treasury stock, shares at cost
Retained earnings
Accumulated other comprehensive loss
Employee benefit trust, at fair value
Total Pfizer Inc. shareholder equity
Equity attributable to noncontrolling interests
Total equity
Total liabilities and equity
24
26
29
33
39
45
52
61
73
93
461
459
455
453
448
445
444
443
443
442
82,685
81,016
78,977
77,283
72,608
71,423
70,760
70,497
70,283
69,913
(84,364)
(79,252)
(73,021)
(67,923)
(40,122)
(31,801)
(22,712)
(21,632)
(57,391)
(56,847)
71,774
71,993
72,176
69,732
54,240
46,210
42,716
40,426
49,142
49,660
(11,036)
(9,522)
(7,316)
(3,271)
(5,953)
(4,129)
(3,440)
552
(4,569)
2,299
(3)
(7)
(333)
(425)
(550)
59,544
64,720
71,301
76,307
81,260
82,190
87,813
90,014
57,556
65,010
296
278
321
313
418
431
452
432
184
114
59,840
64,998
71,622
76,620
81,678
82,621
88,265
90,446
57,740
65,124
$ 171,615 $ 167,460 $ 167,566 $ 172,101 $ 185,798 $ 188,002 $ 195,014 $ 212,949 $ 111,148 $ 115,268
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 19
The Pfizer-Allergan Tax Inversion A-230
Exhibit 7 (cont.)
Pfizer’s Historical Financial Statements (2007-2016)
PFIZER INC
Consolidated Statements of Cash Flows
(Millions, except per common share data)
Year Ended December 31,
Operating Activities
Net income before allocation to noncontrolling interests
$
Adjustments to reconcile net income before allocation to noncontrolling
interests to net cash provided by operating activities:
Depreciation and amortization
Asset write-offs and impairments
Gain/(loss) on disposal of discontinued operations
Deferred taxes from continuing operations
Deferred taxes from discontinued operations
Share-based compensation expense
Benefit plan contributions (in excess of)/less than expense
Other adjustments, net
Other changes in assets and liabilities, net of acquisitions and divestitures:
Trade accounts receivable
Inventories
Other assets
Trade accounts payable
Other liabilities
Other tax accounts, net
Net cash provided by operating activities
Investing Activities
Purchases of property, plant and equipment
Purchases of short-term investments
Proceeds from redemptions/sales of short-term investments
Net (purchases of)/proceeds from redemptions/sales of short-term
investment with original maturities of three months or less
Purchases of long-term investments
Proceeds from redemptions/sales of long-term investments
Acquisitions of businesses, net of cash acquired
Acquisitions of intangible assets
Proceeds from sale of business
Other investing activities, net
Net cash used in investing activities
Financing Activities
Proceeds from short-term borrowings
Principal payments on short-term borrowings
Net proceeds from/(payments on) short-term borrowings with original
maturities of three months or less
Proceeds from issuance of long-term debt
Principal payments on long-term debt
Purchases of common stock
Cash dividend paid
Proceeds from exercise of stock options
Other financing activities, net
Net cash used in financing activities
Effect of exhange-rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning
Cash and cash equivalents, end
Supplemental Cash Flow Information
Non-cash transactions:
Cash paid (received) during the period for:
Income taxes
Interest
Interest rate hedges
$
$
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
7,246 $
6,986 $
9,168 $
22,072 $
14,598 $
10,049 $
8,288 $
8,643 $
8,127 $
8,186
5,757
1,613
691
(712)
1,921
5,157
1,119
6
(20)
2
669
(617)
646
5,537
531
(51)
320
(3)
586
(199)
(430)
6,410
1,145
(10,446)
1,726
(23)
523
296
(641)
7,655
1,299
(7,123)
786
1,412
481
135
(130)
9,026
1,198
(1,688)
236
218
419
(1,769)
18
8,399
3,486
11
2,109
(156)
405
(677)
(49)
4,757
305
(685)
(9,590)
8
349
546
267
5,090
570
(20)
(1,331)
384
(49)
559
5,200
2,220
(158)
(2,788)
437
1,056
(134)
365
(60)
871
(223)
(734)
15,901
21
(199)
236
254
664
(235)
14,689
148
175
1,161
297
(650)
492
17,082
940
(538)
(822)
382
(3,117)
(223)
17,684
367
(631)
(434)
579
(2,738)
490
16,746
140
1,084
186
(367)
1,508
(18)
20,240
(608)
2,917
(818)
(301)
1,114
(12,666)
11,454
252
1,631
(851)
1,501
9,454
16,587
195
294
(538)
4,310
647
18,238
(320)
720
(647)
1,509
(60)
(2,002)
13,353
(1,823)
(15,957)
29,436
(1,397)
(28,581)
40,064
(1,199)
(50,954)
47,374
(1,206)
(42,761)
41,127
(1,327)
(24,018)
25,302
(1,660)
(18,447)
14,176
(1,513)
(11,082)
5,699
(1,205)
(35,331)
42,364
(1,701)
(35,705)
27,883
(1,880)
(25,426)
23,053
(4,218)
(8,011)
11,254
(18,368)
(176)
51
(7,812)
5,768
(9,542)
6,929
(16,466)
(99)
344
(2,980)
3,930
(10,718)
6,145
(195)
(384)
347
(5,654)
(4,277)
(11,020)
7,555
(15)
(259)
312
(10,544)
1,459
(11,145)
4,990
(1,050)
(92)
11,850
185
6,154
10,874
(4,620)
2,147
(3,282)
(222)
2,376
501
1,843
5,950
(4,128)
4,737
(273)
118
(492)
6,368
(6,888)
6,443
(43,123)
100
(31,272)
7,913
(9,357)
739
(1,184)
(1,423)
(12,835)
7,235
(1,635)
172
(464)
(260)
795
7,472
(5,102)
5,557
(3,965)
13
(10)
4,323
(4,234)
7,995
(8,177)
12,810
(13,276)
6,400
(9,249)
31,159
(34,969)
40,119
(37,264)
3,155
(764)
(3,084)
10,976
(7,689)
(5,000)
(7,317)
1,019
(196)
(8,921)
(215)
(1,046)
3,641
2,595 $
2,717
(3,003)
(6,160)
(6,940)
1,263
298
(10,233)
(1,000)
298
3,343
3,641 $
(1,841)
4,491
(2,104)
(5,000)
(6,609)
1,002
72
(9,986)
(83)
1,160
2,183
3,343 $
3,475
6,618
(4,146)
(16,290)
(6,580)
1,750
109
(14,975)
(63)
(7,898)
10,081
2,183 $
(30)
(1,513)
(8,228)
(6,534)
568
(80)
(15,999)
(2)
6,899
3,182
10,081 $
1,910
(1,297)
(6,986)
(6)
(9,000)
(1,000)
(6,234)
(6,088)
153
16
66
(20,607)
(11,174)
(29)
(31)
1,447
(243)
1,735
1,978
3,182 $
1,735 $
874
24,023
(967)
(5,548)
(91)
14,481
60
(144)
2,122
1,978 $
605
2,573
(1,053)
(64)
(500)
(9,994)
(8,541)
(7,975)
74
459
(6,560)
(12,610)
(127)
41
(1,284)
1,579
3,406
1,827
2,122 $
3,406
–
1,669
(700)
$
2,521 $
1,451
(338)
2,383 $
1,302
(237)
– $
2,100 $
1,550
(374)
16,559
2,874 $
1,729
–
–
–
2,409 $
1,873
–
2,927 $
2,085
–
– $
11,775 $
2,155
–
23,303
2,300 $
935
–
2,252 $
782
–
5,617
643
–
Source: Compiled by authors using annual company filings.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 20
The Pfizer-Allergan Tax Inversion A-230
Exhibit 8
Pfizer Revenues and Pre-tax Income by Geography
2016
Revenues
Total
U.S.
Foreign
Developed Europe
Developed Rest of World
Emerging Markets
Pre-tax income
Total
U.S.
Foreign
$
$
52,824
26,369
2015
$
48,852
21,704
2014
$
49,605
19,073
2013
$
51,584
20,274
2012
$
58,986
23,086
2011
$
65,259
26,933
2010
$
65,165
28,855
2009
$
50,009
21,749
2008
$
48,296
20,401
9,306
6,729
10,420
9,714
6,298
11,136
11,719
7,314
11,499
11,739
8,346
11,225
13,375
10,554
11,971
16,099
10,975
11,252
16,156
9,891
10,263
14,561
7,988
5,711
14,980
7,166
5,749
8,351 $
(8,534)
16,886
8,965 $
(6,809)
15,773
12,240 $
(4,744)
16,984
15,716 $
(1,678)
17,394
11,242 $
(5,148)
16,390
11,481 $
(2,655)
14,136
9,471 $
(2,477)
11,899
10,674 $
(3,694)
14,368
9,694
(1,760)
11,454
Source: Compiled by authors using company annual filings.
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
The following table provides additional information about the intangible assets that were impaired during 2014 in Other (income)/
deductions––net :
For the exclusive use of A. Alcivar, 2024.
Year Ended
December 31,
Fair Value
Amount
(MILLIONS OF DOLLARS)
(b)
The Pfizer-Allergan
Tax Inversion
A-230
Intangible assets––IPR&D
$
Intangible assets––Developed technology rights (b)
—
Level 1
$
233
(a)
2014
Level 2
—
$
Level 3
—
—
$
Impairment
—
190
$
233
—
p. 21
159
Intangible assets––Indefinite-lived Brands (b)
293
—
293
47
Exhibit
9 —— $
526 $
396
526 $
— $
Excerpts
from
to Consolidated
Financial
The fair value
amount is Pfizer’s
presented as of theNotes
date of impairment,
as these assets are not measured
at fair value on a Statements
recurring basis. See also (2014-2016)
Note 1E.
$
Total
(a)
(b)
Reflects intangible assets written down to fair value in 2014. Fair value was determined using the income approach, specifically the multi-period excess
earnings method, also known as the discounted cash flow method. W e started with a forecast of all the expected net cash flows associated with the asset and
then we applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this
approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on
the product and the impact of technological risk associated with IPR&D assets; the discount rate, which seeks to reflect the various risks inherent in the
projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
2014 Financial Report
Note 5. Tax Matters
A. Taxes on Income from Continuing Operations
The following table provides the components of Income from continuing operations before provision for taxes on income :
Year Ended December 31,
(MILLIONS OF DOLLARS)
United States
$
International
Income from continuing operations before provision for taxes on income (a), (b)
$
2014
2013
2012
(4,744) $
(1,678) $
(5,148)
16,984
17,394
12,240
$
15,716
16,390
$
11,242
(a)
2014 v. 2013––The increase in the domestic loss was primarily due to lower revenues, the non-recurrence of income from a litigation settlement in 2013 with
Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S., higher charges related to other legal
matters, a non-tax deductible charge in the third quarter of 2014 to account for an additional year of the Branded Prescription Drug Fee in accordance with final
regulations issued by the U.S. Internal Revenue Service (IRS), higher research and development expenses, and higher charges for business and legal entity
alignment costs, partially of fset by lower amortization of intangible assets, lower restructuring charges and other costs associated with acquisitions and costreduction/productivity initiatives, and lower asset impairments. The decrease in international income is primarily related to lower revenues, the non-recurrence
of the gain associated with the transfer of certain product rights to Pfizer ’s equity-method investment in China (Hisun Pfizer) in 2013, and higher research and
development expenses, partially of fset by lower amortization of intangible assets, lower restructuring charges and other costs associated with acquisitions and
cost-reduction/productivity initiatives and the non-recurrence of certain charges.
(b)
2013 v. 2012––The decrease in the domestic loss was primarily due to income from a litigation settlement in the second quarter of 2013 with Teva and Sun for
patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S., lower charges related to other legal matters, lower
restructuring charges and other costs associated with acquisitions and cost-reduction/productivity initiatives, partially of fset by lower revenues. The increase in
international income is primarily related to the gain associated with the transfer of certain product rights to Hisun Pfizer in 2013, lower charges related to other
legal matters, lower restructuring charges and other costs associated with acquisitions and cost-reduction/productivity initiatives and lower amortization of
intangible assets, partially of fset by lower revenues and higher asset impairments and other charges.
78
2014 Financial Report
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 22
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2014 Financial Report (cont.)
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The following table provides the components of Provision for taxes on income based on the location of the taxing authorities:
Year Ended December 31,
2014
(MILLIONS OF DOLLARS)
2013
2012
United States
Current income taxes:
$
Federal
393
$
142
$
(941)
85
(106)
Federal
725
2,124
869
State and local
(256)
(33)
(339)
948
2,127
(465)
Current income taxes
2,321
2,544
2,430
Deferred income taxes
(149)
(365)
256
2,172
2,179
2,686
State and local
(54)
Deferred income taxes:
Total U.S. tax provision/(benefit)
International
Total international tax provision
Provision for taxes on income
$
3,120
$
4,306
$
2,221
In 2014, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.2 billion as a result of providing U.S. deferred income taxes on certain funds earned outside the U.S.
that will not be indefinitely reinvested overseas, virtually all of which were earned in the current year (see Note 5C);
•
Tax benefits of approximately $350 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to
prior years, primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations;
•
The favorable impact of the decline in the non-tax deductible loss recorded in 2013 related to an option to acquire the remaining interest in
Teuto, since we expect to retain the investment indefinitely;
•
The extension of the U.S. R&D tax credit, which was signed into law in December 2014; and
•
The non-deductibility of a $362 million fee payable to the federal government as a result of the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act (U.S. Healthcare Legislation).
In 2013, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.3 billion as a result of providing U.S. deferred income taxes on certain funds earned outside the U.S.
that will not be indefinitely reinvested overseas, virtually all of which were earned in the current year (see Note 5C);
•
U.S. tax benefits of approximately $430 million, representing tax and interest, resulting from a multi-year settlement with the IRS with
respect to audits of the W yeth tax returns for the years 2006 through date of acquisition, and international tax benefits of approximately
$470 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to prior years with various
foreign tax authorities, and from the expiration of certain statutes of limitations;
•
The unfavorable tax rate associated with the $1.3 billion of patent litigation settlement income;
•
The non-deductibility of the $292 million of goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part
of the transfer of certain product rights to Hisun Pfizer;
•
The non-deductibility of the $223 million loss on an option to acquire the remaining interest in Teuto, since we expect to retain the
investment indefinitely, and the non-deductibility of a $32 million impairment charge related to our equity-method investment in Teuto;
•
The extension of the U.S. R&D tax credit (resulting in the full-year benefit of the 2012 and 2013 U.S. R&D tax credit being recorded in
2013); and
•
The non-deductibility of a $280 million fee payable to the federal government as a result of the U.S. Healthcare Legislation.
In 2012, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.2 billion as a result of providing U.S. deferred income taxes on certain current-year funds earned
outside the U.S. that will not be indefinitely reinvested overseas (see Note 5C);
•
U.S. tax benefits of approximately $1.1 billion, representing tax and interest, resulting from a multi-year settlement with the IRS with
respect to audits of the Pfizer Inc. tax returns for the years 2006 through 2008, and international tax benefits of approximately $310 million,
representing tax and interest, resulting from the resolution of certain tax positions pertaining to prior years with various foreign tax
authorities, and from the expiration of certain statutes of limitations;
•
The non-deductibility of a $336 million fee payable to the federal government as a result of the U.S. Healthcare Legislation;
•
The non-deductibility of the $491 million legal charge associated with Rapamune litigation (see also Note 4); and
•
The expiration of the U.S. R&D tax credit on December 31, 201 1.
2014 Financial Report
79
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 23
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2014 Financial Report (cont.)
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in
Provision for taxes on income (see Note 2A).
B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our ef fective tax rate for Income from continuing operations follows:
Year Ended December 31,
2014
2013
2012
U.S. statutory income tax rate
35.0%
35.0%
35.0%
Taxation of non-U.S. operations (a), (b), (c)
(7.4)
(2.5)
(3.5)
Tax settlements and resolution of certain tax positions (d)
(2.9)
(5.7)
(12.8)
U.S. Healthcare Legislation (d)
1.0
0.6
1.0
U.S. R&D tax credit and manufacturing deduction (d)
(0.9)
(0.8)
(0.3)
Certain legal settlements and charges (d)
—
(0.2)
1.5
All other, net
0.5
1.0
(1.1)
25.5%
27.4%
19.8%
Effective tax rate for income from continuing operations
(a)
For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the
U.S., together with the cost of repatriation decisions, as well as changes in uncertain tax positions not included in the reconciling item called “T ax settlements
and resolution of certain tax positions”. Specifically: (i) the jurisdictional location of earnings is a significant component of our ef fective tax rate each year as
tax rates outside the U.S. are generally lower than the U.S. statutory income tax rate, and the rate impact of this component is influenced by the specific
location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the cost of repatriation decisions, and other U.S. tax
implications of our foreign operations, is a significant component of our ef fective tax rate each year and generally of fsets some of the reduction to our
effective tax rate each year resulting from the jurisdictional location of earnings; and (iii) the impact of changes in uncertain tax positions not included in the
reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our ef fective tax rate each year that can result in either an
increase or decrease to our ef fective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation
costs, can vary as a result of the repatriation decisions, as a result of operating fluctuations in the normal course of business and as a result of the extent and
location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See
also Note 5A for the components of pre-tax income and Provision for taxes on income, which is based on the location of the taxing authorities, and for
information about settlements and other items impacting Provision for taxes on income .
(b)
In all periods presented, the reduction in our ef fective tax rate resulting from the jurisdictional location of earnings is largely due to generally lower tax rates,
as well as manufacturing and other incentives associated with our subsidiaries in Puerto Rico and Singapore. W e benefit from a Puerto Rican incentive grant
that expires in 2029. Under the grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates
effective through 2031 on income from manufacturing and other operations.
(c)
The favorable rate impact in 2014 also includes the decline in the non-tax deductible loss recorded in 2013 related to an option to acquire the remaining
interest in Teuto, since we expect to retain the investment indefinitely . The rate impact in 2013 also includes the non-deductibility of the goodwill
derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to Hisun Pfizer , and the nondeductibility of the loss on an option to acquire the remaining interest in Teuto, since we expect to retain the investment indefinitely , and the non-deductibility
of an impairment charge related to our equity-method investment in Teuto. For additional information, see Note 2E.
(d)
For a discussion about tax settlements and resolution of certain tax positions, the impact of U.S. Healthcare Legislation, the U.S. R&D tax credit and the
impact of certain legal settlements and charges, see Note 5A. The extension of the U.S. R&D tax credit in January 2013 resulted in the full-year benefit of the
2012 and 2013 U.S. R&D tax credit being recorded in 2013.
80
2014 Financial Report
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 24
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2014 Financial Report (cont.)
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Deferred Taxes
Deferred taxes arise as a result of basis dif ferentials between financial statement accounting and tax amounts.
The components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
2014 Deferred Tax
Assets
(MILLIONS OF DOLLARS)
Prepaid/deferred items
$
2013 Deferred Tax
(Liabilities)
1,995
$
Assets
(53) $
(Liabilities)
1,913
$
(134)
Inventories
219
(56)
277
(217)
Intangible assets
969
(9,224)
892
(10,331)
(1,390)
Property, plant and equipment
Employee benefits
Restructurings and other charges
174
(1,242)
376
3,950
(154)
3,154
(77)
114
(28)
453
(237)
—
Legal and product liability reserves
1,010
—
904
Net operating loss/tax credit carryforwards (a)
2,918
—
2,043
—
Unremitted earnings (b)
—
(21,174)
—
(19,399)
State and local tax adjustments
295
—
297
—
All other
283
(783)
249
(448)
11,927
(32,714)
10,558
(32,233)
(1,615)
—
(1,288)
$
(32,714) $
9,270
$
(22,402)
Valuation allowances
Total deferred taxes
Net deferred tax liability (c), (d)
$
10,312
—
$
(32,233)
$
(22,963)
(a)
The amounts in 2014 and 2013 are reduced for unrecognized tax benefits of $2.6 billion and $2.3 billion, respectively, where we have net operating loss
carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional
income taxes that would result from the disallowance of a tax position.
(b)
The increase in 2014 reflects additional accruals for certain funds earned outside the U.S. that will not be indefinitely reinvested overseas, virtually all of
which were earned in the current year . For additional information, see Note 5A.
(c)
The net deferred tax liability position decreased, reflecting an increase in noncurrent deferred tax assets related to net operating loss and tax credit
carryforwards, an increase in current deferred tax assets related to product liability reserves due to settlements, an increase in noncurrent deferred tax
assets related to employee benefits, and a decrease in noncurrent deferred tax liabilities resulting from the amortization of identifiable intangible assets,
partially offset by the increase in noncurrent deferred tax liabilities related to unremitted earnings.
(d)
In 2014, included in Current deferred tax assets and other current tax assets ($2.1 billion), Noncurrent deferred tax assets and other noncurrent tax assets
($515 million ), Other current liabilities ($43 million) and Noncurrent deferred tax liabilities ($25.0 billion ). In 2013, included in Current deferred tax assets and
other current tax assets ($2.1 billion ), Noncurrent deferred tax assets and other noncurrent tax assets ($569 million ), Other current liabilities ($52 million) and
Noncurrent deferred tax liabilities ($25.6 billion ).
We have carryforwards, primarily related to foreign tax credits, net operating and capital losses and charitable contributions, which are
available to reduce future U.S. federal and state, as well as international, income taxes payable with either an indefinite life or expiring at
various times from 2015 to 2034. Certain of our U.S. net operating losses are subject to limitations under Internal Revenue Code Section 382.
Valuation allowances are provided when we believe that our deferred tax assets are not recoverable based on an assessment of estimated
future taxable income that incorporates ongoing, prudent and feasible tax planning strategies, that would be implemented, if necessary , to
realize the deferred tax assets.
As of December 31, 2014, we have not made a U.S. tax provision on approximately $74.0 billion of unremitted earnings of our international
subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred
tax liability as of December 31, 2014, is not practicable.
D. Tax Contingencies
We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related
to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve
complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or
litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates
of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could
materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as
discrete items in the period of resolution.
For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1O. For a description of the
risks associated with estimates and assumptions, see Note 1C.
2014 Financial Report
81
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 25
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2015 Financial Report
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 26
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2015 Financial Report (cont.)
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 27
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2015 Financial Report (cont.)
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 28
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2015 Financial Report (cont.)
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 29
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2016 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 5. Tax Matters
A. Taxes on Income from Continuing Operations
The following table provides the components of Income from continuing operations before provision for taxes on income:
Year Ended December 31,
(MILLIONS OF DOLLARS)
$
United States
International
Income from continuing operations before provision for taxes on income(a), (b)
$
2016
2015
2014
(8,534) $
(6,809) $
(4,744)
16,886
15,773
16,984
8,351
$
8,965
$
12,240
(a)
2016 v. 2015––The increase in the domestic loss was primarily due to a charge related to the write-down of HIS net assets to fair value less estimated costs to
sell, higher asset impairments, and higher restructuring charges and certain acquisition-related costs, partially offset by the inclusion of a full year of legacy U.S.
Hospira operations as compared to four months of U.S. operations in 2015, and lower charges for legal matters. The increase in international income is
primarily due to the non-recurrence of a foreign currency loss related to Venezuela partially offset by a charge related to the write-down of HIS net assets to fair
value less estimated costs to sell, and higher restructuring charges and certain acquisition-related costs.
(b)
2015 v. 2014––The increase in the domestic loss was primarily due to the loss of exclusivity for Celebrex and Zyvox, higher restructuring charges and higher
selling, informational and administrative expenses, partially offset by the performance of certain products including Prevnar 13 and Ibrance, and the impact of
Hospira operations. The decrease in international income was primarily due to a foreign currency loss related to Venezuela, higher asset impairments, and the
loss of exclusivity for Lyrica in certain developed markets, partially offset by lower R&D costs.
The following table provides the components of Provision for taxes on income based on the location of the taxing authorities:
Year Ended December 31,
2016
(MILLIONS OF DOLLARS)
2015
2014
United States
Current income taxes:
Federal
State and local
Deferred income taxes:
Federal
State and local
Total U.S. tax provision
International
Current income taxes
Deferred income taxes
Total international tax provision
Provision for taxes on income
$
$
342 $
(52)
67 $
(8)
393
85
(419)
(106)
(235)
300
(36)
323
725
(256)
948
1,532
(175)
1,358
1,123 $
1,951
(284)
1,667
1,990 $
2,321
(149)
2,172
3,120
In 2016, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $1.1 billion as a result of providing U.S. deferred income taxes on certain funds earned outside the U.S.
that will not be indefinitely reinvested overseas, virtually all of which were earned in the current year (see Note 5C);
•
tax benefits of approximately $460 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to
prior years, primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations;
•
benefits related to the final resolution of an agreement in principle reached in February 2016 and finalized in April 2016 to resolve certain
claims related to Protonix, which resulted in the receipt of information that raised our initial assessment in 2015 of the likelihood of
prevailing on the technical merits of our tax position;
•
net tax benefits of $89 million, related to the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016,
requiring excess tax benefits or deficiencies of share-based compensation to be recognized as a component of the Provision for taxes on
income (see Note 1B);
•
the non-deductibility of a $312 million fee payable to the federal government as a result of the U.S. Healthcare Legislation; and
•
the permanent extension of the U.S. R&D tax credit, which was signed into law in December 2015.
In 2015, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.1 billion as a result of providing U.S. deferred income taxes on certain funds earned outside the U.S.
that will not be indefinitely reinvested overseas, virtually all of which were earned in the current year (see Note 5C);
•
tax benefits of approximately $360 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to
prior years, primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations;
•
the permanent extension of the U.S. R&D tax credit, which was signed into law in December 2015, as well as tax benefits associated with
certain tax initiatives;
•
the non-deductibility of a foreign currency loss related to Venezuela;
•
the non-deductibility of a charge for the agreement in principle reached in February 2016 to resolve claims relating to Protonix; and
•
the non-deductibility of a $251 million fee payable to the federal government as a result of the U.S. Healthcare Legislation.
2016 Financial Report
93
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 30
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2016 Financial Report (cont.)
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
In 2014, the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.2 billion as a result of providing U.S. deferred income taxes on certain funds earned outside the U.S.
that will not be indefinitely reinvested overseas, virtually all of which were earned in 2014 (see Note 5C);
•
tax benefits of approximately $350 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to
prior years, primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations;
•
the favorable impact of the decline in the non-tax deductible loss recorded in 2013 related to an option to acquire the remaining interest in
Teuto, since we expect to retain the investment indefinitely;
•
the extension of the U.S. R&D tax credit, which was signed into law in December 2014; and
•
the non-deductibility of a $362 million fee payable to the federal government as a result of the U.S. Healthcare Legislation.
In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in
Provision for taxes on income (see Note 2A).
B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows:
Year Ended December 31,
2016
2015
2014
U.S. statutory income tax rate
35.0%
35.0%
35.0%
Taxation of non-U.S. operations(a), (b), (c)
(13.8)
(9.6)
(7.4)
Tax settlements and resolution of certain tax positions(d)
(5.5)
(4.0)
(2.9)
U.S. Healthcare Legislation(d)
1.3
0.9
1.0
U.S. R&D tax credit and manufacturing deduction(d)
(1.0)
(1.0)
(0.9)
Certain legal settlements and charges(d)
(2.9)
3.1
—
All other, net(e)
0.3
(2.1)
0.5
13.4%
22.2%
25.5%
Effective tax rate for income from continuing operations
(a)
For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the
U.S., together with the cost of repatriation decisions, as well as changes in uncertain tax positions not included in the reconciling item called “Tax settlements
and resolution of certain tax positions”. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year as
tax rates outside the U.S. are generally lower than the U.S. statutory income tax rate, and the rate impact of this component is influenced by the specific
location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the cost of repatriation decisions, and other U.S. tax
implications of our foreign operations, is a significant component of our effective tax rate each year and generally offsets some of the reduction to our
effective tax rate each year resulting from the jurisdictional location of earnings; and (iii) the impact of changes in uncertain tax positions not included in the
reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an
increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation
costs, can vary as a result of the repatriation decisions, as a result of operating fluctuations in the normal course of business and as a result of the extent and
location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See
also Note 5A for the components of pre-tax income and Provision for taxes on income, which is based on the location of the taxing authorities, and for
information about settlements and other items impacting Provision for taxes on income.
(b)
In all periods presented, the reduction in our effective tax rate resulting from the jurisdictional location of earnings is largely due to generally lower tax rates,
as well as manufacturing and other incentives associated with our subsidiaries in Puerto Rico, Singapore, Costa Rica, and the Dominican Republic. We
benefit from a Puerto Rican incentive grant that expires in 2029. Under the grant, we are partially exempt from income, property and municipal taxes. In
Singapore, we benefit from incentive tax rates effective through 2031 on income from manufacturing and other operations. Hospira’s infusion technologies
business benefits from income tax exemptions in Costa Rica and the Dominican Republic through 2028 and 2019, respectively.
(c)
The favorable rate impact in 2016 also includes the non-recurrence of the non-deductibility of a foreign currency loss related to Venezuela. The rate impact in
2015 also includes the non-deductibility of a foreign currency loss related to Venezuela. The favorable rate impact in 2014 also includes the decline in the
non-tax deductible loss recorded in 2013 related to an option to acquire the remaining interest in Teuto, since we expected to retain the investment
indefinitely. For additional information, see Note 2E.
(d)
For a discussion about tax settlements and resolution of certain tax positions, the impact of U.S. Healthcare Legislation, the U.S. R&D tax credit and the
impact of certain legal settlements and charges, see Note 5A.
(e)
All other, net in 2015 primarily relates to tax benefits associated with certain tax initiatives in the normal course of business.
94
2016 Financial Report
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
p. 31
The Pfizer-Allergan Tax Inversion A-230
Exhibit 9 (cont.)
Excerpts from Pfizer’s Notes to Consolidated Financial Statements (2014-2016)
2016 Financial Report (cont.)
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Deferred Taxes
Deferred taxes arise as a result of basis differentials between financial statement accounting and tax amounts.
The components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
2016 Deferred Tax
Assets
(MILLIONS OF DOLLARS)
Prepaid/deferred items
$
2015 Deferred Tax
(Liabilities)
2,180
$
Assets
(68) $
(Liabilities)
2,247
(38)
$
366
(47)
381
(190)
1,139
(15,172)
1,063
(10,885)
92
(982)
65
(1,096)
3,356
(74)
3,302
(167)
Restructurings and other charges
458
(2)
318
(20)
Legal and product liability reserves
650
—
730
—
2,957
—
3,808
—
Unremitted earnings(b)
—
(23,108)
—
(23,626)
State and local tax adjustments
301
—
328
—
All other
306
(503)
310
(646)
11,806
(39,956)
12,552
(36,668)
(1,949)
—
(2,029)
$
(39,956) $
10,523
$
(30,099)
Inventories
Intangible assets
Property, plant and equipment
Employee benefits
Net operating loss/tax credit carryforwards(a)
Valuation allowances
Total deferred taxes
Net deferred tax liability (c)
$
9,857
—
$
(36,668)
$
(26,145)
(a)
The amounts in 2016 and 2015 are reduced for unrecognized tax benefits of $3.0 billion and $2.9 billion, respectively, where we have net operating loss
carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional
income taxes that would result from the disallowance of a tax position.
(b)
The decrease in 2016 reflects the reversal of certain prior year accruals for earnings outside the U.S. that were not indefinitely reinvested overseas, partially
offset by additional accruals for certain funds earned outside the U.S. in the current year that will not be indefinitely reinvested overseas. For additional
information, see Note 5A.
(c)
In 2016, Noncurrent deferred tax assets and other noncurrent tax assets ($654 million), and Noncurrent deferred tax liabilities ($30.8 billion). In 2015,
Noncurrent deferred tax assets and other noncurrent tax assets ($732 million), and Noncurrent deferred tax liabilities ($26.8 billion).
We have carryforwards, primarily related to foreign tax credits, net operating and capital losses and charitable contributions, which are
available to reduce future U.S. federal and state, as well as international, income taxes payable with either an indefinite life or expiring at
various times from 2017 to 2036. Certain of our U.S. net operating losses are subject to limitations under IRC Section 382.
Valuation allowances are provided when we believe that our deferred tax assets are not recoverable based on an assessment of estimated
future taxable income that incorporates ongoing, prudent and feasible tax planning strategies, that would be implemented, if necessary, to
realize the deferred tax assets.
As of December 31, 2016, we have not made a U.S. tax provision on approximately $86.0 billion of unremitted earnings of our international
subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred
tax liability as of December 31, 2016, is not practicable.
D. Tax Contingencies
We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related
to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve
complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or
litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates
of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could
materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as
discrete items in the period of resolution.
For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1O. For a description of the
risks associated with estimates and assumptions, see Note 1C.
2016 Financial Report
95
This document is authorized for use only by Ana Alcivar in Copy of Copy of Tax Policy 6877 taught by MIRIAM WEISMANN, Florida International University from Apr 2024 to Jun 2024.
For the exclusive use of A. Alcivar, 2024.
CASE: A-226
DATE: 2/17/16
STICKS AND STONES?
HOW COMPANIES RESPOND TO
“TAX SHAMING”
Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as
to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody
owes any public duty to pay more than the law demands: taxes are enforced exactions, not
voluntary contributions. To demand more in the name of morals is mere cant.
1
—Judge Learned Hand, Commissioner v. Newman, 159 F2d 848 (1947)
You know, there are a whole range of benefits that have helped to build companies, create value,
create profits. For you to continue to benefit from that entire architecture that helps you thrive,
but move your technical address simply to avoid paying taxes is neither fair, nor is it something
that’s going to be good for the country over the long term. And this is basically taking advantage
of tax provisions that are technically legal—but I think most people would say if you’re doing
business here, if you’re basically still an American company, but you’re simply changing your
mailing address in order to avoid paying taxes then you’re really not doing right by the country—
and by the American people.
2
—President Barack Obama (2014)
On November 12, 2012, Starbucks Global CFO Troy Alstead, Google Vice President for Sales
and Operations (north and central Europe) Matt Brittin, and Amazon Director for Public Policy
Andrew Cecil sat sandwiched together at the end of a long, horseshoe-shaped table in a
windowless hearing room of the British Parliament. All three executives wore bright red poppy
pins in their lapels, in honor of the U.K.’s Armistice Day commemoration, but their expressions
were somber: they had been called before the Public Accounts Committee to answer questions
1
http://intltax.typepad.com/intltax_blog/2009/07/famous-tax-quotes-4-5.html (February 11, 2016).
From interview with CNBC Steve Leisman, in Business Insider, “Obama Goes On The Attack Against Companies
…