Pfizer’s $160 billion purchase of Allergan was expected to create the world’s largest pharmaceutical company—and, controversially, allow the companies to avoid billions in US corporate taxes by relocating Pfizer’s headquarters from New York to Dublin.
But according to reports in Reuters, the Wall Street Journal, and CNBC, the deal will be called off as early as Wednesday morning because of new US Treasury rules that went into effect on April 4. The regulations aim to curb “inversions” by US companies, in which they claim a foreign headquarters to get lower taxes, although the bulk of their operations remain in the United States. The Treasury is now pushing the US Congress to make these temporary and proposed regulations law.
Pfizer and Allergan have been studying the rules since they were made public. Pfizer’s board voted on Tuesday night to halt the deal, the Wall Street Journal reported (paywall).
US companies’ artificial shifting of profits to low-tax havens costs $130 billion in corporate taxes a year, Gabriel Zucman, an economist at the University of California, Berkeley, told Quartz earlier. Even as official tax rates have stayed steady in the US, the rates that companies actually pay has been declining for years.
The Pfizer-Allergan combination may not be the only deal called off because of the new Treasury rules. Wisconsin’s Johnson Controls and Ireland-based Tyco International are reviewing a planned $14 billion merger in light of the regulations.