Read the following words/expressions found in today’s article.
1. pharmaceutical / ˌfɑr məˈsu tɪ kəl / (adj.) – related to the manufacturing and selling of medicine
Example: The drug company I work for is the biggest in the global pharmaceutical industry.
2. make history / ˈmeɪkˈhɪs tə ri / (idiom) – to do something that is so huge and memorable that it affects history
Example: The company made history when it expanded to more than 50 countries within a year.
3. loophole / ˈlupˌhoʊl / (n.) – an error or gap in the law that allows people to legally avoid it without being punished
Example: The loophole in the tax law allowed the company to significantly reduce its tax without getting punished.
4. subject / ˈsʌb dʒɪkt / (adj.) – under the control or authority of someone or something
Example: The Japanese company is now subject to the foreign country’s laws after transferring its headquarters there.
5. reimbursement / ˌriɪmˈbɜrsmənt / (n.) – money given to repay someone’s expenses or losses
Example: The company released the reimbursement for her business trip.
Read the text below.
US pharmaceutical [fahr-muh-SOO-ti-kuh l] company Pfizer backs out of a merger with Irish drug company Allergan after the US Treasury announced plans to amend US tax laws.
On April 6, Pfizer announced its decision to withdraw from a $160 billion merger deal with Allergan, maker of the famous anti-wrinkle drug Botox. The merger would have made history as the biggest pharmaceutical deal in the world. Pfizer’s decision was influenced by the US Treasury’s announcement of its plans to make changes in the country’s tax laws to prevent companies from committing inversions.
Loopholes in the current US tax laws enable companies to commit inversions so that they can avoid the country’s high corporate tax rate. Inversions are done with companies from countries with lower tax rates, so that a US company could reduce its tax. A US company inverts by buying a smaller foreign company and naming it as the newly-merged company’s headquarters. As a result, the newly-merged company becomes legally foreign. It becomes subject to the tax laws of the foreign country, where the tax rate is lower.
The current corporate tax rate in the United States is 35%, which is much higher compared to Ireland’s 12.5% tax rate. For this reason, Ireland has become a famous destination among US companies seeking to invert. Since 2004, there have been 18 US companies that have inverted to Irish companies.
After Pfizer’s withdrawal from the merger, Allergan’s shares dropped by around 15%. Pfizer promised to pay Allergan $150 million as reimbursement for the latter’s expenses. Meanwhile, Pfizer shares increased by 7.4% as investors support the company’s decision to not merge with Allergan.
Enjoy a discussion with your tutor.
· How do you think consumers would be affected if the merger of the two giant drug companies pushed through?
· Aside from tax laws, what other laws may affect the operation of a business?
· Aside from a country’s laws, what do you think are the other factors that attract a company into another country?
· On the other hand, what do you think are the reasons why a company would not venture into another country?