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Idea of the Day: Pfizer’s Potential Corporate Inversion Shows Need to Tighten Our Tax Rules

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American drug maker Pfizer is attempting to acquire AstraZeneca, the United Kingdom’s second-largest pharmaceutical company. If successful, Pfizer would avoid paying billions of dollars in U.S. taxes by becoming a U.K.-based corporation, and Pfizer executives have made these tax benefits a central element of their pitch to AstraZeneca. This corporate maneuver, in which a U.S. corporation becomes a foreign corporation for tax purposes, is called a corporate inversion. Lawmakers on both sides of the aisle have fought back against corporate inversions for years, and they could be stopped if Congress were to strengthen laws passed 10 years ago.

Preventing corporate inversions would not be complicated, and Congress should move quickly to pass stand-alone legislation to do so. While comprehensive tax reform has the potential to strengthen our international tax system, it means different things to different people. If done incorrectly, tax reform could become little more than a race to the bottom to cut corporate taxes as much as possible. The potential Pfizer-AstraZeneca merger shows the pitfalls of corporate tax cuts: Even though the United Kingdom would become Pfizer’s new tax headquarters, the United Kingdom could still lose jobs as AstraZeneca would become little more than a tax planning tool.

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This is part of a regular column: Idea of the Day

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